Payroll tax is a state and territory tax that employers pay on the wages they pay to employees — but only once those wages exceed a set annual threshold. It is entirely an employer obligation: employees do not pay payroll tax and do not see it on their payslip. The tax exists in every Australian state and territory, with each jurisdiction setting its own rate and threshold.
Who Pays Payroll Tax?
Employers pay payroll tax — not employees. If you are a business owner who employs people (or engages certain contractors) and your total Australian wages exceed the relevant state threshold, you have a payroll tax obligation.
| Who has a payroll tax liability? | Who does not? |
|---|---|
| Companies, trusts, and partnerships employing staff above the threshold | Employees (payroll tax is not deducted from wages) |
| Sole traders with employees above the threshold | Sole traders with no employees |
| Groups of related companies (wages aggregated — see grouping provisions) | Businesses genuinely below the threshold in every state |
Why Does Payroll Tax Exist?
Payroll tax is a broad-based tax on employment. It is one of the states’ main own-source revenue streams, alongside stamp duty and land tax. Critics argue payroll tax discourages employment because it effectively makes hiring workers more expensive. Supporters argue it is a relatively efficient tax base. Reform of payroll tax thresholds and rates is a recurring topic in state budgets.
What Wages Are Included?
The definition of “wages” for payroll tax is broad. It generally includes:
- Salaries and wages — base pay, overtime, bonuses, commissions, allowances
- Director fees — fees paid to company directors for their role
- Superannuation contributions — employer super (SG contributions) are included in most states
- Termination payments — certain components of redundancy or termination pay
- Fringe benefits — the taxable value of fringe benefits provided to employees
- Payments to certain contractors — this is where it gets complex
Contractor Payments and Payroll Tax
Each state applies its own contractor provisions, but broadly, payments to contractors may be treated as wages for payroll tax purposes if:
- The contractor provides services of a kind ordinarily performed by employees (e.g., a contractor who works fixed hours on your premises doing work your permanent staff also do)
- The contractor is not genuinely conducting their own business
- The arrangement looks like a disguised employment relationship
Genuine independent contractors operating their own businesses with multiple clients, their own tools and equipment, and commercial risk are typically excluded from payroll tax wages. The practical application of contractor provisions is one of the most contested areas of payroll tax.
Annual vs Monthly Payroll Tax
Payroll tax liability accrues monthly, and most states require monthly lodgement through the state’s online portal once you are registered. At the end of the financial year, you lodge an annual reconciliation that:
- Confirms your total wages for the year
- Applies the full-year threshold
- Reconciles the monthly payments made against the actual annual liability
- Results in either a final payment or credit/refund
Example of Monthly vs Annual Reconciliation
A Victorian business has monthly wages of $100,000 (annual: $1,200,000), which exceeds the $700,000 threshold.
- Monthly instalment (approximate): ($100,000 − $700,000/12) × 4.85% = ($100,000 − $58,333) × 4.85% ≈ $2,019/month
- Annual reconciliation confirms actual wages and adjusts if income varied during the year
Registering for Payroll Tax
You must self-assess and register for payroll tax in each state where you have a liability. Registration is not automatic — the state revenue authority does not know you exist until you register (or until they audit you).
Registration triggers: You must register as soon as you become liable — typically when your wages reach (or are likely to reach) the threshold in that state.
Registration can usually be done online through the relevant state’s revenue authority portal:
| State | Portal |
|---|---|
| NSW | Revenue NSW — payrolltax.revenue.nsw.gov.au |
| VIC | State Revenue Office — sro.vic.gov.au |
| QLD | Queensland Revenue Office — qro.qld.gov.au |
| WA | RevenuOnline — my.gov.au (WA) |
| SA | RevenueSA — revenuesa.sa.gov.au |
Concessions for Small Businesses
Some states offer concessions for businesses close to the threshold:
- Regional employer concessions (VIC, QLD) — businesses with predominantly regional workforces may qualify for a reduced rate
- Apprentice and trainee exemptions — wages paid to apprentices and trainees are exempt in most states
- Startup exemptions — some states exempt new businesses for a period
Related Articles
- Payroll Tax Australia — State-by-State Guide
- Payroll Tax Grouping Provisions
- Sole Trader Tax Australia
- GST and Business Tax hub
Frequently Asked Questions
Is payroll tax the same as income tax withholding (PAYG)? No. PAYG withholding is the income tax deducted from employee wages by employers and remitted to the ATO on behalf of employees — it reduces the employee’s personal tax liability. Payroll tax is a separate tax paid entirely by the employer on top of wages, and it goes to the relevant state government, not the ATO.
Can payroll tax push my effective employment cost above the employee’s wage? Yes. Payroll tax adds to the cost of employment. A $100,000 salary in NSW also attracts 11.5% superannuation ($11,500), and if payroll tax applies, an additional 5.45% on wages above the threshold. The total cost of employment significantly exceeds the face-value wage.
Do not-for-profit organisations pay payroll tax? Most charitable and not-for-profit organisations are exempt from payroll tax in all states and territories, subject to meeting eligibility conditions. The exemption does not apply automatically — organisations usually need to apply to the relevant state revenue authority.
This article provides general tax information. Payroll tax rules are complex and differ between states. For advice tailored to your business, speak with a registered tax agent. Find one through the Tax Practitioners Board register.