Payroll Tax
Payroll tax is an Australian state or territory tax based on taxable wages paid by an employer or employer group above the relevant threshold.
Payroll tax is paid by the employer. It is separate from the income tax withheld from an employee’s pay and separate from superannuation contributions.
The Australian Government’s payroll tax overview explains that payroll tax is calculated under state or territory rules, that thresholds and rates vary, and that some contractor payments may be included.
Where Payroll Tax Appears
You may see payroll tax in:
- state or territory revenue-office registrations
- monthly payroll tax returns and annual reconciliations
- payroll reports used to classify taxable and exempt wages
- employer-group and interstate-wage calculations
- the general ledger and profit and loss statement
- year-end reviews by accountants, payroll specialists or advisers
It does not usually appear as a deduction on an employee’s payslip, because it is the employer’s tax cost rather than an amount withheld from that employee.
Payroll Tax Versus Other Payroll Amounts
| Amount | Who Bears Or Receives It? | What Drives It? |
|---|---|---|
| Payroll Tax | Employer pays the relevant state or territory revenue office | Taxable wages, jurisdiction, threshold, rate and grouping rules |
| PAYG Withholding | Employer withholds from employee pay and remits it to the ATO | Employee earnings, declarations and withholding rules |
| Superannuation Guarantee | Employer contributes for eligible employees | Ordinary time earnings and applicable super rules |
How Payroll Tax Works In Practice
An employer first determines where wages are connected for payroll tax purposes. It then identifies which payments are taxable, exempt or subject to special treatment under that jurisdiction’s rules.
The employer must also test its total Australian wages against the relevant threshold. If related businesses form a payroll tax group, their wages may need to be combined and the group may share one threshold. Revenue NSW’s grouping guidance illustrates why looking at one company or one state’s wages in isolation can give the wrong answer.
Registration, return frequency, due dates, wage categories, rates and thresholds can change. Always check the current revenue-office guidance for every state or territory in which the business employs people.
Simple Example
A services group has employees in two Australian states. Before preparing returns, it combines the relevant Australian wages across the group, allocates wages to the correct jurisdictions and reviews items such as allowances, superannuation and contractor payments under each state’s rules.
One national payroll total is useful source data, but it is not the final tax calculation. Each jurisdiction’s current threshold, rate, nexus and exemption rules must be applied.
Why Payroll Tax Matters
Payroll tax can become a significant employer cost as a business grows. Missing a registration trigger or failing to identify a group can lead to backdated tax, interest and penalties.
It also affects budgets and hiring decisions. A wage increase can change both the direct payroll cost and the payroll tax estimate, so forecasts should not treat wages as the only employer cost.
Common Payroll Tax Mistakes
- confusing payroll tax with PAYG withholding
- checking wages separately for companies that may be grouped
- using only wages paid in one state when an Australian-wages test applies
- assuming every contractor payment is included or excluded
- applying an old threshold or rate to a new financial year
- assuming payroll software determines legal liability without reviewing jurisdictional rules
How Gimbla Can Help
Gimbla can keep pay runs, employee earnings, superannuation, deductions and accounting entries connected. Payroll reports can provide source figures for a payroll tax review and help reconcile the tax expense and payable balance.
The employer must still apply current state or territory rules, grouping tests and exemptions. For a complex group, interstate workforce or uncertain contractor arrangement, obtain advice from the relevant revenue office or a qualified adviser.
Related Terms
Helpful Gimbla Guides
In Short
Payroll tax is an employer tax administered by Australian states and territories. Liability depends on current jurisdictional, wage, threshold and grouping rules—not the amount shown on one employee’s payslip.