Remote work. Everyone loves it.
The flexibility is second-to-none; the option to move interstate and live where you want has seen employee happiness soar, and saying goodbye to long commutes has been a life-changer. All-in-all, the opportunities that remote work has brought are endless.
While everyone is lapping up the benefits of remote work and working from wherever they want, it might come as news that each state in Australia has their own set of rules – in the form of payroll taxes.
If an employee decides to pack up and move their life interstate, or you take a leap and hire an employee who lives across state borders, you could be subject to different payroll obligations.
We all know that payroll compliance is a trending topic right now. In recent years, the Fair Work Ombudsman (FWO) and Australian Taxation Office (ATO) has cracked down on these businesses and are now taking a no-tolerance approach to those who get it wrong.
With this in mind, there’s never been a more critical time for Australian businesses to make sure they’re paying their employees compliantly.
Disclaimer: The information in this article is relevant as at 16 Feb 2022, and has been prepared by Employment Hero Pty Ltd ABN (11 160 047 709) (Employment Hero). The views expressed herein are general information only and are provided in good faith to assist employers and their employees. The Information is based on data supplied by third parties. While such data is believed to be accurate, it has not been independently verified and no warranties are given that it is complete, accurate, up to date or fit for the purpose for which it is required. Employment Hero does not accept responsibility for any inaccuracy in such data and is not liable for any loss or damages arising either directly or indirectly as a result of reliance on, use of or inability to use any information provided in this article.
What is payroll tax?
Payroll refers to the amount of money an employee is entitled to be paid for the work they have completed. In Australia, employers are required to pay payroll tax on the wages paid or payable to employees if they’re over the tax-free threshold.
However, payroll tax rates and thresholds differ for each state and territory and are calculated on the wages an employer pays each month.
Whether you employ one person or one hundred people, the same rule applies to all businesses when it comes to payroll – be compliant or face penalties.
However, when you’re a small or medium-sized business, you most likely don’t have the luxury of having in-house or external accounting professionals helping you manage your payroll function.
Read more: Why is bookkeeping important for SMBs?
Payroll tax: rightly misunderstood
Payroll tax is paid to each state and territory individually, all of which have their own thresholds, rates and exemptions, as well as their own remittance schedules (yearly, monthly etc).
To make things even more complicated, each state and territory’s thresholds are decided on total Australian wages, not just those paid in their own state or territory.
Lost yet? Wouldn’t blame you – payroll tax is one of the most misunderstood taxes in Australia.
Let’s break it down to something we’ll all understand. Below are the current payroll rates and thresholds for each state and territory:
We know, that’s a lot of numbers, but the only ones you need to pay attention to are the state and territories where you pay wages.
Let’s use NSW and metro Victoria as our example.
Your business spends $1,000,000 on wages in Australia each year. 50% of your wages are paid in NSW, and 50% are paid in Victoria. As your total Australian wages don’t exceed NSW’s threshold, you don’t pay any payroll tax in NSW, but you do need to pay payroll tax in Victoria.
The rate is 4.85%, but you are only taxed on the amount above the threshold ($1,000,000 – $650,000 = $350,000). You also only have to pay tax on the proportion of total wages paid in Victoria (50%).
Simple, right? No, of course not. Not really. And it only gets more complicated the more wages you pay and the more states and territories you pay them in.
It’s a massive pain, and up until now, some businesses could get away with putting it in the ‘too hard’ basket, but that’s all about to change.
How does payroll tax work in Australia?
If you operate a business in Australia and have employees, chances are you’re paying payroll tax. Even if you’re only paying wages (salary, bonuses etc.) in one state or territory, this self-assessed tax can be challenging to understand at the best of times.
But if you’re paying employees across multiple states and territories, things can get very complicated – and fast.
In Australia, payroll tax is paid to each state and territory individually, all of which have their own thresholds, rates and exemptions, as well as their own remittance schedules (yearly, monthly etc).
To make things even more complicated, each state and territory’s thresholds are decided on total Australian wages, not just those paid in their own state or territory
So, how can you ensure you’re doing the right thing?
That’s where the Government has stepped in and made it easier to report on payroll, with Single Touch Payroll (STP).
What is Single Touch Payroll (STP)?
Single Touch Payroll (STP) is a newly created initiative from the Australian Government to help reduce employers’ reporting burdens to government agencies. It allows you to automatically report your employees’ payroll information directly to the Australian Taxation Office (ATO) each time you process their pay.
STP was introduced in 2018 to encourage small businesses to be more compliant in the way they report superannuation and PAYG instalments to employees.
As of 1 January 2022, STP Phase 2 has commenced.
The ATO states that payroll information includes:
- Salaries and wages
- Pay as you go (PAYG) withholding
- Superannuation
It’s important you keep up to date with STP updates to ensure you’re remaining compliant.
Thinking about making the switch to Employment Hero Payroll? We’ve been working hard to implement STP to meet the ATO’s specifications so that STP will automatically be rolled out for you.
STP and payroll tax: a winning combination (for state revenue)
STP has made it MUCH easier for each state and territory’s revenue office to identify what wages are being paid and where. And with payroll tax being the biggest tax levied by state and territory governments, we expect to see revenue offices all around the country start pulling up businesses not paying up.
Revenue NSW pursued over 4,000 payroll tax investigations in 2019/2020, with 79% over those investigations finding underpayments totalling almost $170 million. With more and more Australian businesses hiring remote employees, payroll tax seems like a disincentive to grow as a business, especially interstate.
And while payroll tax may seem unnecessarily convoluted (and maybe even a little bit outdated), it’s also being used by some states and territories to identify and penalise wage theft.
Read more: Should you hire an accountant?
Payroll tax requirements for interstate employees in Australia
When it comes to payroll tax, all Australian states and territories have worked to streamline their payroll administration. However, tax rates and tax thresholds vary for each state and territory and are calculated on the total taxable Australian wages.
Below, we’ve outlined the tax thresholds and reconciliation dates for each state and territory.
Please note: States and territories may update thresholds to account for changes during Covid-19. We strongly encourage you to check with your state or territory prior to lodging your tax return.
Australian Capital Territory
If you (the employer) are required to pay payroll tax, you must lodge a return with the ACT Revenue Office. From here, you will agree to a rate of frequency to pay the tax (either monthly or annually).
What is the monthly tax threshold for the ACT?
From July 2016, the threshold for the monthly payroll tax threshold in the ACT is $166,666.66, or $2 million per year.
If you’re required to pay payroll tax in the ACT (your monthly Australia-wide wages exceeds the ACT’s monthly threshold), you need to complete this registration. It is required that you register within seven days of exceeding the threshold amount.
What is the payment due date for payroll tax in the ACT?
In the ACT, monthly tax returns for July to November, and January to May, are due on the 7th day of the following month. The December tax return is due 14 January. If the 7th day of the month falls on a weekend or a public holiday, it will carry over to the next business day.
The annual reconciliation is due on 28 July of the same year. From here, you will receive a notice containing any information regarding tax underpayment or refund details for overpayments.
For more information on payroll tax in the ACT, visit revenue.act.gov.au.
Northern Territory
Employers who employ people in the Northern Territory with Australian annual wages exceeding $1.5 million, or $125,000 monthly, are required to register for payroll tax in the NT.
What is the monthly tax threshold for the Northern Territory?
Currently, the payroll tax rate in the Northern Territory for the 2021-22 financial year is 5.5%.
What is the payment due date for payroll tax in the Northern Territory?
As per Northern Territory Revenue, you must pay payroll tax when your total Australian wages reach the above threshold. This is required to be paid within 21 days of the end of the month you reach the threshold.
For more information on payroll tax in the Northern Territory, visit nt.gov.au or ablis.business.gov.au.
Queensland
What is the monthly tax threshold for Queensland?
As per the Queensland Revenue Office, employers who pay more than $25,000 a week in Australian taxable wages, or are a member of a group that together pays more than $25,000 a week in Australian taxable wages, are subject to payroll tax.
What is the payment due date for payroll tax in Queensland?
Employers must register for payroll tax after the end of the month in which your wages (or your group wages) exceed $25,000 a week.
For more information on payroll tax in Queensland, visit business.qld.gov.au.
New South Wales
What is the monthly NSW payroll tax threshold?
From 1 July 2020 onwards, the yearly payroll tax threshold is $1.2 million, and the monthly threshold varies depending on the days in the month. You can view the monthly thresholds here.
What is the payment due date for payroll tax in NSW?
As NSW Revenue states, each monthly payment or nil return is due within seven days after the end of each month. If day 7 falls on a weekend or a public holiday, it will carry over to the next business day.
For more information on payroll tax in NSW, visit revenue.nsw.gov.au or take a look at the payroll tax self-assessment website to better understand your payroll tax obligations as an employer in NSW.
South Australia
What is the tax threshold for South Australia?
As per Revenue SA, an employer must register for payroll tax when their Australia-wide taxable wages exceed the South Australian threshold and the employer pays wages in South Australia
For the 2021-22 financial year, the payroll tax rate operates on a sliding scale. From $1.5 million to $1.7 million, the rate is variable from 0% to 4.95%. For $1.7 million and above, the rate is 4.95%. A dedication entitlement is available for up to $600,000 annually or $50,000 monthly.
What is the payment due date for payroll tax in South Australia?
Payroll tax can be paid either monthly or annually in South Australia.
All registered employers who employ people in South Australia must lodge an annual reconciliation return. This allows for any overpayments or adjustments to be made, as well as an opportunity to review the tax paid on the full financial year.
The due date for the annual lodgement is 28 July. If the 28th falls on a public holiday or weekend, the next business day will also be accepted.
Those on a monthly return payment are required to remit their payroll tax on the 7th day of the previous month. If the 7th day falls on a weekend or public holiday, it falls over to the next business day.
For more information on payroll tax in South Australia, visit revenue.sa.gov.au
Tasmania
What is the tax threshold for Tasmania?
In Tasmania, any employer (or member of a group) who pays wages in Tasmania is subject to payroll tax if their total wages exceed $1.25 million per year, or $24,038 per week.
For payroll of $1.25 million per year to $2 million, the tax rate is 4%. For $2 million and above, the tax rate is 6.1%
What is the payment due date for payroll tax in Tasmania?
The frequency of payroll tax lodgements is based on the information provided when you apply for payroll tax.
For monthly payroll tax returns, they are due by the 7th of the month following.
For annual returns, they are due by 21 July each year.
For more information on payroll tax in Tasmania, visit sro.tas.gov.au.
Victoria
What is the tax threshold for Victoria?
According to State Revenue Office Victoria, payroll tax applies if you pay wages in Victoria and your Australian wages exceed the monthly threshold.
Currently, the annual threshold for 1 July 2021 to 30 June 2022 is $700,000, and the monthly threshold is $58.333.
What is the payment due date for payroll tax in Victoria?
The annual reconciliation for payroll tax in Victoria is due on the 21 July after each financial year. If the 21st falls on a public holiday or weekend, the next business day will also be accepted.
For more information on payroll tax in Victoria, visit sro.vic.gov.au.
Western Australia
What is the tax threshold for Western Australia?
As per the Western Australian Office of State Revenue, you must pay payroll tax if the total Australian taxable wages paid by you, or your group, exceed the monthly or annual threshold amount.
Payroll tax is calculated on a sliding scale and gradually increases the tax rate up to a maximum of 6.5% for employers (or groups of employers), with more than $1 million of annual taxable wages in Australia. This rate applies through to 30 June 2023.
The tax-free threshold phases out for employers who have annual taxable wages between $1 million and $7.5 million in Australia.
What is the payment due date for payroll tax in Western Australia?
Upon registering for payroll tax in Western Australia, you will be notified of your lodgement frequency. This will be monthly, quarterly or annual.
If you are required to lodge monthly returns, they are due and payable by the 7th of the following month. For the return in the month of June, you will be required to pay it by the 21 July.
If you are required to lodge your returns quarterly, they are due and payable by the 7th of October, January, April and 21st July.
If you are notified to lodge annual returns, they are due and payable by 21 July.
You can find more information about payroll tax on wa.gov.au or take a look at the Western Australia payroll tax calculator.
Let us be your payroll helping hand
Getting your head around payroll legislation in different states and territories is complex and time-consuming – but that’s where we can help. Employment Hero Payroll can help you automate manual payroll tasks, is Single Touch Payroll (STP) compliant and helps you manage your payroll and workforce planning in one easy-to-access place.
With Employment Hero Payroll you’ll have access to over 50 Modern Awards built-in to the system, automatic award interpretation, dynamic rostering, roster templates and so much more.
If you want to find out more about how Employment Hero can help streamline your HR payroll process, get in touch with one of our small business specialists today.
Related resources:
- 12 questions to ask your outsourced payroll provider
- Payroll commonly asked questions: Answered
- Understanding fringe benefits tax
Guide to Payroll in Australia
