Everything You Need to Know About Payroll Tax
- Jess The Small Business Book
- Jan 9
- 4 min read
As a business owner, staying on top of your payroll obligations is crucial. Among the various taxes you need to be aware of is payroll tax. Payroll tax, unlike many other taxes is a state or territory-based levy that applies to businesses meeting specific wage thresholds. If you’re unfamiliar with payroll tax or need a refresher, this blog will break it down for you, covering who needs to pay, how it’s calculated, and tips for managing it effectively.
What Is Payroll Tax?
Payroll tax is a state or territory-based tax that employers pay on their total wages once they exceed a specific threshold. Unlike income tax, payroll tax is paid by the business rather than employees. The rates and thresholds vary depending on the state or territory in which your business operates – keep reading to find these out.
While the concept is straightforward, navigating the details can be tricky due to differences across regions. Knowing where and when payroll tax applies is essential to ensure compliance.
Who Needs to Pay Payroll Tax?
Not every business is required to pay payroll tax. You only need to pay it if:
1. Your total wages exceed the payroll tax threshold for your state or territory.
2. You have employees or contractors in multiple states or territories, and your wages collectively exceed the national threshold.
The definition of "wages" for payroll tax includes more than just salaries. It also encompasses allowances, superannuation, fringe benefits, and some contractor payments. This broad definition means you may reach the threshold sooner than expected.
Current Payroll Tax Thresholds and Rates
Here’s a snapshot of payroll tax thresholds and rates in Australia as of 2024 (check your state or territory for updates):
• Western Australia: Threshold $1 million, rate 5.5%
• New South Wales: Threshold $1.2 million, rate 5.45%
• Victoria: Threshold $700,000, rate 4.85% (regional rates may vary)
• Queensland: Threshold $1.3 million, rate 4.75% (regional discounts apply)
• South Australia: Threshold $1.5 million, rate 4.95%
• Tasmania: Threshold $1.25 million, rate 6.1%
• ACT and NT: Varying thresholds and rates—consult local guidelines.
If your business operates across multiple jurisdictions, you must apportion wages and calculate payroll tax separately for each location.
How Is Payroll Tax Calculated?
The formula for calculating payroll tax is relatively simple:
Taxable Wages – Threshold = Taxable Amount × Payroll Tax Rate
For example, if your business in Western Australia has taxable wages of $1.5 million, the calculation would look like this:
$1,500,000 - $1,000,000 = $500,000 × 5.5% = $27,500 payroll tax.
Note: this is a very basic version of the calculation and other items may need to be taken into account as taxable wages include more than just salaries. Items you need to account for may be benefits, allowances, and other payments.
To find out the correct calculation for your business, each state or territory generally has a calculator tool on their websites. For example, WA has one here.
When Do You Need to Pay Payroll Tax?
Payroll tax is generally paid monthly, but some states allow for quarterly or annual payments depending on your payroll size. The payment schedule and due dates vary:
• Monthly: Payments are typically due on the 7th of the following month.
• Quarterly: Some smaller businesses may qualify for quarterly lodgement.
• Annual Reconciliation: At the end of the financial year, you’ll need to reconcile your payroll tax to ensure all amounts have been reported accurately.
Failing to lodge and pay on time can result in penalties and interest, so it’s essential to stay organised.
Tips for Managing Payroll Tax
1. Understand Your Obligations
Start by determining whether your business exceeds the payroll tax threshold in your state or territory. Regularly monitor your wages to stay compliant.
2. Use Payroll Software
Invest in software that simplifies payroll tax calculations and reporting. Tools like Xero and MYOB can help automate the process.
3. Keep Accurate Records
Ensure all wage components, including superannuation, allowances, and fringe benefits, are accurately recorded.
4. Plan for Growth
If your business is nearing the payroll tax threshold, consider the financial impact of crossing it and plan accordingly.
5. Seek Expert Advice
Payroll tax can be complex, especially if your business operates across multiple jurisdictions. Consulting a professional, like The Small Business Book, ensures compliance and accuracy.
Common Payroll Tax Mistakes
1. Misclassifying Workers
Payments to some contractors may be deemed taxable wages. Misclassification can lead to underpayment and penalties.
2. Missing Benefits
Fringe benefits and allowances often count towards taxable wages. Omitting these can result in underreported amounts.
3. Late Lodgement
Failing to lodge and pay on time can incur penalties and interest charges.
How The Small Business Book Can Help
Navigating payroll tax obligations can be overwhelming, but you don’t have to do it alone. We specialise in payroll services for small businesses in Perth and across Australia. We have an expert on our team who can ensure compliance with payroll tax regulations, whether you operate locally or across multiple states.
From setting up payroll systems to reconciling annual returns, we can make your payroll tax management hassle-free. Let us handle the complexities so you can focus on what you do best - running your business.
Payroll tax is an important obligation for Australian businesses meeting state and territory thresholds. Understanding your responsibilities and implementing effective processes will help you manage this tax seamlessly.
If you need expert support, we are here to assist with all your payroll and bookkeeping needs.
