Payroll tax is a state and territory tax that employers pay on wages once their total Australian wage bill exceeds a jurisdiction-specific annual threshold. It is entirely an employer obligation — employees do not pay it and do not see it on their payslip. The tax is administered separately by each state’s revenue authority, meaning businesses operating across multiple states must manage multiple registrations, lodgements, and payment schedules.
Key Facts — Payroll Tax at a Glance
- Who pays: Employers (not employees)
- What it applies to: Wages above the annual threshold
- Administered by: Each state and territory revenue authority (not the ATO)
- Lodgement: Monthly, with an annual reconciliation
- Deductibility: Yes — payroll tax is deductible as a business expense
Rates and Thresholds by State (FY2025–26)
| State/Territory | Annual threshold | Tax rate |
|---|---|---|
| NSW | $1,200,000 | 5.45% |
| VIC | $700,000 | 4.85% |
| QLD | $1,300,000 | 4.75% |
| WA | $1,000,000 | 5.5% |
| SA | $1,500,000 | 4.95% |
| TAS | $1,250,000 | 4.0% |
| ACT | $2,000,000 | 6.85% |
| NT | $1,500,000 | 5.5% |
Rates and thresholds change with each state budget. Verify current figures with the relevant state revenue authority before calculating your liability.
How Payroll Tax Is Calculated
Payroll tax is calculated on wages above the threshold — the threshold is not a cliff that applies tax to all wages:
$$\text{Annual payroll tax} = (\text{Total wages} - \text{Threshold}) \times \text{Rate}$$
Example — NSW business paying $1,800,000 in wages:
$$($1,800,000 - $1,200,000) \times 5.45% = $600,000 \times 5.45% = $32,700$$
Example — VIC business paying $1,000,000 in wages:
$$($1,000,000 - $700,000) \times 4.85% = $300,000 \times 4.85% = $14,550$$
What Counts as Wages
Payroll tax applies to a broad definition of wages:
Included:
- Salaries, wages, and overtime
- Bonuses, commissions, and incentive payments
- Allowances (including car and meal allowances)
- Director fees
- Employer superannuation contributions (in most states)
- Termination payments (certain components)
- Fringe benefits (taxable value)
- Payments to certain contractors (under contractor provisions)
Generally excluded:
- Genuine independent contractor payments (where no deemed employee relationship exists)
- Apprentice and trainee wages (concessions vary by state)
- Parental leave funded through the federal government scheme
- Reimbursements of genuine expenses
Monthly Lodgement and Annual Reconciliation
Most states require monthly lodgement — you estimate your monthly payroll tax liability and pay it by the due date each month (typically the 7th of the following month). At year end (30 June), you complete an annual reconciliation that confirms your total wages for the year and calculates the actual tax due. If monthly payments exceeded the annual liability, you receive a credit; if they fell short, you pay the balance.
| Step | Timing |
|---|---|
| Register for payroll tax | When you become liable |
| Monthly lodgement and payment | By 7th of the following month |
| Annual reconciliation | By 21 July (most states) |
Multi-State Operations — Apportionment
If your business operates in multiple states, the threshold is apportioned across states in proportion to the wages paid in each. You cannot claim a full threshold in each state — you share one threshold.
Example — Business paying $2,500,000 total, split 60% NSW / 40% VIC:
| NSW | VIC | |
|---|---|---|
| Wages in state | $1,500,000 | $1,000,000 |
| Threshold proportion | $1,200,000 × 60% = $720,000 | $700,000 × 40% = $280,000 |
| Taxable wages | $1,500,000 − $720,000 = $780,000 | $1,000,000 − $280,000 = $720,000 |
| Payroll tax | $780,000 × 5.45% = $42,510 | $720,000 × 4.85% = $34,920 |
| Total payroll tax | $77,430 |
The exact apportionment method is set by each state’s legislation and may differ slightly. Most states use a wages-proportion basis as shown above.
Grouping Provisions
Related companies and entities are grouped for payroll tax — the threshold is shared across the entire group, not per entity. This prevents wage-splitting strategies. See Payroll Tax Grouping Provisions for details.
Contractor Provisions
Some payments to contractors are treated as wages for payroll tax purposes, depending on the nature of the work arrangement. The test varies by state but broadly includes contractors who:
- Provide services of a kind ordinarily done by employees
- Work exclusively or predominantly for one principal
- Do not supply their own equipment or materials
This is one of the most contested areas of payroll tax. Seek advice if you engage contractors and are approaching or exceeding the payroll tax threshold.
Exemptions and Concessions
| Exemption/Concession | States |
|---|---|
| Non-profit and charitable organisations | All states (apply separately) |
| Apprentices and trainees | Most states |
| Regional employer concession (reduced rate) | VIC, QLD |
| Wages for parental leave (federal scheme) | All states |
| Religious institutions | Most states |
Registration
You must self-register with each state revenue authority in which you have a payroll tax liability. There is no automatic registration. Most states allow online registration through their revenue portal. Penalties apply for late registration.
Related Articles
- What Is Payroll Tax and Who Pays It?
- Payroll Tax Thresholds and Rates by State 2025
- Payroll Tax Grouping Provisions
- State and Territory Taxes — Overview
- State and Territory Tax hub
- Taxes hub
Frequently Asked Questions
When exactly must I register for payroll tax? You must register as soon as you become aware that your wages have reached or will reach the threshold in a state. Most revenue authorities expect registration within 7 days of becoming liable. Late registration attracts penalties and back-dated liability.
Do I pay payroll tax on superannuation contributions? In most states, yes — employer SG superannuation contributions are included in the definition of wages for payroll tax purposes. Some states only include contributions above the mandated SG rate. Check with the relevant state revenue authority.
Can I deduct payroll tax from employees’ wages? No. Payroll tax is entirely an employer cost. It is not deducted from employee wages and employees have no obligation in relation to it.
This article provides general tax information. Payroll tax rules differ between states and change with each state budget. For advice tailored to your business, speak with a registered tax agent. Find one through the Tax Practitioners Board register.