Payroll Tax Overview

Payroll tax is the state tax that surprises growing businesses. It has nothing to do with the PAYG withholding you take out of employees' pay — it is a separate tax on the employer, levied by each state and territory once the total wages bill crosses a threshold. Because you have to self-register, plenty of businesses cross the line without noticing, until the state revenue office writes to them.

How it works

Each state and territory sets its own threshold and rate, and you register with the revenue office in each state where you have staff. Liability is worked out on your Australia-wide wages, with the threshold effectively shared across states in proportion to where the wages are paid — you do not get a full threshold in every state. Once registered, most employers lodge monthly returns and then an annual reconciliation after 30th June.

In Victoria, where we are based, the tax-free threshold has been around the $1 million mark in recent years and the general rate has sat at 4.85%, with a lower rate for regional employers and a surcharge on very large payrolls — but these figures move, so check the current State Revenue Office of Victoria numbers before relying on them. Other states differ meaningfully on both the threshold and the rate.

What counts as wages

Wages for payroll tax purposes is much broader than gross salary. It generally includes:

• Salaries, wages, bonuses, commissions and allowances
• Superannuation contributions, including salary-sacrificed amounts
• Fringe benefits
• Directors' fees
• Certain contractor payments, unless a specific exemption applies
• Some termination payments

The contractor and superannuation items are the ones most often missed. A business can look comfortably under the threshold on gross wages alone and be over it once super and contractor payments are counted properly.

Grouping: the rule that catches families of companies

Related businesses can be grouped — commonly where entities are related companies, share common control, or use each other's employees. A group shares one threshold across all of its members, and every member can be made liable for the group's payroll tax debts. Splitting a workforce across two companies does not create two thresholds; it usually just creates a grouping problem, plus a please-explain letter from the revenue office.

When to get advice

Do a payroll tax check when your total employment cost — wages, super, contractors and benefits combined — starts approaching the threshold in any state, when you hire interstate or remote staff, and whenever you run more than one entity with employees. Registering late usually means paying the back tax with interest, so this is one of the cheaper problems to catch early.

Is payroll tax the same as the tax I withhold from employees' pay?

No. PAYG withholding is the employee's income tax that you collect for the ATO; payroll tax is a separate state tax the employer itself pays on its total wages bill once it exceeds the state threshold.

Do contractor payments count towards payroll tax?

Often, yes — most states include payments under relevant contracts unless one of several specific exemptions applies, so contractor arrangements should be reviewed rather than assumed exempt.

We have staff in more than one state — how does the threshold work?

Liability is assessed on Australia-wide wages, and the threshold is apportioned between states based on where wages are paid, so you may need to register in each state even if no single state's wages exceed its full threshold.