A guide to payroll tax for employers

Understanding your payroll tax obligations can be tricky.

Payroll tax rates and thresholds are set by each state or territory and vary across the country. Several exemptions and concessions apply, making it difficult for business owners and employers to navigate the rules.

Here’s what you need to know.

What is payroll tax?

Payroll tax is a tax calculated on remuneration paid to employees once the total amount exceeds the state or territory threshold.

Not every business has to pay.

Remuneration that is subject to payroll tax includes total gross wages plus superannuation, bonuses and commissions, allowances, fringe benefits, employee share schemes and termination payments.

Certain remuneration is exempt from payroll tax, including primary and secondary caregivers leave, Commonwealth paid parental leave, contributions to redundancy benefit schemes and bone fide redundancy, and early retirement payments.

Some organisations may also be exempt from paying the tax, including not-for-profits, public benevolent institutions, religious institutions, healthcare service providers, state school councils, and approved not-for-profit training organisations.

However, several criteria apply to the concessions, and these differ from state to state.

How payroll tax works

An individual employer or a group of related businesses are liable for payroll tax when their total wages exceed the set state payroll tax threshold.

Employers must self-assess their liability and pay at an agreed frequency, usually monthly, to the respective state or territory’s revenue office in which the remuneration is paid.

In Victoria, employers must register for and pay payroll tax if their total Australian wages exceed $54,166 per month, or $650,00 over the full financial year. Employers must also pay the tax if their business is grouped with other businesses and they have combined wages that exceed those amounts.

Payroll tax is currently set at 4.85 per cent for metropolitan Victorian employers and 2.02 per cent for regional Victorian employers.

Regional payroll tax is set to decrease over the next two years. From July 1 this year, it will reduce to 1.62 per cent, and from July 1, 2022, it will fall to 1.2125 per cent.

There is also a special payroll tax rate for businesses in areas affected by bushfire.

If a business or employer is registered to pay monthly, they must submit wage details on the seventh of every month, even if they have no payroll tax liability for that period.

All employers must lodge an annual reconciliation by July 21 each year.

In a bid to simplify rules across the country, Australian state and territory governments have brought in legislation to align payroll tax provisions in key areas.

These include lodgement timings, motor vehicle and accommodation allowances, a range of fringe benefits, employee share acquisition, and superannuation contributions.

Registering for payroll tax

The onus is on businesses and employers to assess whether they are liable for payroll tax and to register.

To register for payroll tax, employers must complete and lodge an application with the relevant state office. This can generally be done online.

The payroll tax office in each state conducts regular audits of business wages levels, as they have access to Tax Office and Workers Compensation Insurance data, so it is vital that employers fully understand their obligations.

Need help with payroll tax?

If you need help navigating the rules surrounding payroll tax and how it may impact your business from an accounting and business advisory perspective, LDB is here to help.

With a broad range of accounting, finance, and business expertise under one roof, LDB’s expert team is ready to help you and your business.

To get in touch, phone (03) 9875 2900 or send us a note via the contact form below.