Payroll Tax
Payroll tax is an important obligation for employers across Australia. It applies when the total wages paid to employees exceed a set threshold determined by each state or territory. Understanding how payroll tax works, how to calculate it, and how to pay it is essential for ensuring compliance and avoiding penalties. This guide explains the key aspects of payroll tax, including what it is, how it is calculated, and how it operates in practice. It also covers which wages are liable, the process for paying payroll tax, and where to find current rates and thresholds for each state and territory. Whether you are a small business growing your team or a large employer operating across multiple regions, understanding payroll tax will help you meet your legal responsibilities with confidence.
What is Payroll Tax?
Payroll tax is a state and territory tax that employers must pay when their total wages exceed a certain threshold. It is calculated on the amount of wages paid or payable to employees, including salaries, bonuses, allowances, superannuation, and some contractor payments. Unlike income tax, which is paid by employees, payroll tax is the responsibility of the employer.
How Do You Calculate Payroll Tax?
Calculating payroll tax involves determining the total wages you pay to your employees and applying the relevant tax rate set by your state or territory. Payroll tax is based on the total wages you pay or are liable to pay in a given period, such as monthly or annually. Wages include salaries, commissions, bonuses, allowances, fringe benefits, superannuation contributions, and certain contractor payments.
In New South Wales (NSW), businesses must register for payroll tax if their total Australian wages exceed the annual tax-free threshold, which is currently $1,200,000. The payroll tax rate in NSW is 5.45%. If your total wages go beyond this threshold, you’ll need to pay payroll tax on the amount exceeding $1,200,000.
The basic formula for calculating payroll tax is:
Payroll Tax = (Total Taxable Wages − Threshold Amount) × Payroll Tax Rate
For example, if your total taxable wages for the year are $1,500,000, your payroll tax liability would be calculated as follows:
($1,500,000 − $1,200,000) × 5.45% = $16,350
This means you would owe $16,350 in payroll tax for that year.
If your business operates across multiple states, you’ll need to apportion wages based on where employees perform their work. Keeping accurate records of payments, allowances, and benefits is essential to ensure correct reporting and compliance. Many employers use payroll software or engage accountants to manage payroll tax calculations, lodge returns, and ensure all state revenue obligations are met on time.
How Does Payroll Tax Work?
Payroll tax is a state-based tax imposed on employers when their total wages exceed a certain threshold. Each Australian state and territory has its own payroll tax rates and rules, meaning the amount payable depends on where your employees perform their work. The revenue collected helps fund essential public services such as education, transport, and healthcare.
In New South Wales (NSW), the annual payroll tax threshold is $1,200,000, and the current tax rate is 5.45%. This means if your total Australian wages exceed $1.2 million in a financial year, you must register for payroll tax and pay it on the portion above that threshold. Employers are typically required to lodge monthly returns and complete an annual reconciliation to ensure all payroll tax obligations are met.
Wages that are liable for payroll tax include a wide range of employee-related payments. These include:
- gross salaries and wages
- fringe benefits
- employer superannuation contributions
- termination payments
- contractor payments
- interstate wages
- allowances
- bonuses and commissions
- directors’ fees
- shares and options
- apprentice and trainee wages
Payroll tax is calculated on the total of these taxable wages paid or payable to employees, apprentices, and some contractors. The tax is applied based on where the work is performed, not necessarily where the business is located, so employers operating in multiple states must apportion wages accordingly.
How Do You Pay Payroll Taxes?
Payroll tax payments in NSW are made to Revenue NSW, the state body that administers the tax. Most businesses choose to lodge and pay monthly through the Revenue Online Service (ROS), where you can calculate your liability, submit returns, and make payments electronically. Monthly returns are generally due by the seventh day of the following month, while the annual reconciliation is due in July, finalising your payroll tax for the previous financial year.
To calculate how much you need to pay, employers must total all taxable wages for the month, deduct the tax-free threshold portion, and apply the current NSW payroll tax rate of 5.45%. Wages liable for payroll tax include salaries, superannuation contributions, allowances, contractor payments, bonuses, and other employment-related benefits.
Payments can be made via electronic funds transfer (EFT), BPAY, or directly through the Revenue NSW online portal. It’s important to keep accurate payroll records and lodge on time to avoid penalties or interest charges.
Payroll Tax Rates and Thresholds Across Australian States and Territories
You can find the payroll tax threshold and rate on your state or territory revenue office website:
Expert Payroll Tax Services for Australian Businesses
At Juggernaut Advisory, we assist businesses in managing their payroll tax obligations with accuracy and confidence. Our team provides comprehensive services that include the calculation and lodgement of payroll tax returns, ensuring all reporting is completed correctly and on time. We also offer expert advice on payroll tax compliance, helping you understand your responsibilities under state and territory laws. Whether your business operates in New South Wales or across multiple regions, Juggernaut Advisory ensures you remain compliant while minimising administrative stress and potential penalties.