Ultimate guide to payroll tax in Australia

Published Thursday 9 July 2026

Table of contents

• What is payroll tax in Australia?
• Who pays payroll tax and when do you register?
• What wages count for payroll tax?
• How to calculate payroll tax
• When to lodge and pay payroll tax
• Payroll tax vs PAYG withholding
• Do payroll the easy way with Xero
• FAQs on payroll tax

Key takeaways

• Payroll tax is a state and territory tax on wages once your business or group exceeds the local threshold.
• Rules differ by state, so check your state revenue office for rates, thresholds, exemptions, and your payroll tax due date.
• If you exceed the threshold mid-year, you'll need to register and account for all taxable wages from the start of the financial year, not just from when you crossed the threshold.
• Use a consistent workflow for calculating payroll taxes: confirm liability, identify taxable wages, apportion, apply rates, and reconcile.

What is payroll tax in Australia?

Payroll tax is a state and territory tax on the wages you pay employees, charged only once your total wages pass a set threshold in a financial year (1 July to 30 June). You pay it as the employer, and only on the portion above the threshold.

Each state and territory sets its own rate and threshold, and applies its own exemptions. The figures vary widely: in 2025-26, Victoria's monthly threshold is $83,333 and South Australia's is $125,000. So the amount you owe depends heavily on where you employ staff.

Payroll tax is separate from other payroll obligations like PAYG withholding and the superannuation employer contribution. Even if you're already managing those, payroll tax becomes an additional requirement once your wages grow.

Who pays payroll tax and when do you register?

Employers pay payroll tax once their total wages exceed the threshold in a state or territory, and it applies to most types of employers, not just large companies. If your wages are increasing, you'll want to know when you cross the thresholds where you operate.

Payroll tax can apply to:

• companies
• sole traders with employees
• partnerships
• trusts
• some contractor arrangements

When to register for payroll tax

Register for payroll tax when you expect to exceed the relevant threshold, or actually exceed it during the financial year.

If you've already exceeded the threshold, most states require you to register within a short timeframe, often around seven days.

If your business is growing, monitor your wages closely so you can register on time.

If you employ staff across different states or territories, you may need to register in each region. Grouping rules may apply, whereby the state or territory revenue office treats your related businesses as one employer.

What wages count for payroll tax?

Taxable wages include more than just salaries, so understanding what's counted helps you avoid underestimating your liability. The categories below are generally captured across states and territories.

Generally, taxable wages include:

• salaries and wages
• bonuses and commissions
• allowances (for example, travel or meals)
• director fees
• employer superannuation contributions
• fringe benefits (like company cars), adjusted for tax value
• some contractor payments

Do contractor payments count?

Payments to contractors may be included in your payroll tax liability in some cases. They're more likely to count if:

• the contractor mainly provides labour
• they work regularly for your business
• they're paid based on time (for example, hourly or daily)

Some contractor arrangements are exempt, especially if the contractor provides a clear service or works with multiple clients.

Review the contractor provisions published by your relevant state revenue office to check if a payroll tax exemption applies. These provisions typically include detailed guidance, examples, and exemption tests you can apply to your situation.

When wages are exempt from payroll tax

Some wages are exempt, but exemptions vary by state. Common examples include:

• some parental leave payments
• wages for apprentices or trainees
• wages paid by eligible charities

Always confirm any potential wage exemptions with your state revenue office or a local accounting expert before applying them.

How to calculate payroll tax

To calculate payroll tax, subtract your state threshold from your total taxable wages, then apply the state rate to the remaining amount. Below is a simple workflow you can follow each month or reporting period.

1. Confirm your total taxable wages

Start by running a payroll report for the financial year to date. Include:

• gross wages
• super contributions
• bonuses and commissions
• taxable contractor payments
• fringe benefits

Exclude any wages that are exempt under your state's exemption guidelines.

2. Check your local payroll tax threshold

Look up the current threshold for your state or territory.

If you operate in more than one state, work out your total Australian wages first, then allocate the wages to each state.

3. Calculate the taxable portion of wages

Subtract the threshold from your total wages, because only the amount above the threshold is taxed:

Total wages - state threshold = taxable wages

4. Apply the payroll tax rate

Multiply your taxable wages by the relevant state rate to find the total amount of payroll tax you'll owe:

Taxable wages x rate = payroll tax payable

5. Lodge and reconcile

Payroll tax is usually reported:

• monthly (based on actual or estimated wages)
• annually (a final reconciliation after 30 June)

Confirm the reporting frequency with your local state revenue office.

Prepare for monthly and annual reconciliations by:

• reviewing wages monthly
• adjusting estimates if your payroll changes
• keeping records for reconciliation

This will help reduce your workload and administrative complexity when you reach reporting deadlines.

Worked example

Here's a short illustration using a single-state business. Say your total Australian taxable wages for the year are $2,000,000 and you operate only in New South Wales, where the 2025-26 annual threshold is $1,200,000 and the rate is 5.45%.

• Taxable wages: $2,000,000 - $1,200,000 = $800,000
• Payroll tax payable: $800,000 x 5.45% = $43,600

Your own figures will depend on your state's threshold and rate, so confirm both with your state revenue office before you lodge.

When to lodge and pay payroll tax

You lodge and pay payroll tax throughout the financial year, usually as monthly returns plus an annual reconciliation. Most states follow this same cadence, with slight differences in dates.

Key timing considerations

To stay compliant, check and record your state or territory's deadlines for:

• monthly returns, usually due within a few weeks after month-end
• annual reconciliations, typically due in July

Deadlines can vary slightly by state. If you miss a deadline, you may face penalties and interest charges.

Keep track of the payroll tax due date that applies to you, and note there may be several if you're operating in more than one state or territory. Review payroll monthly to avoid surprises or corrections during annual reconciliation.

Software that combines payroll and compliance can help you monitor deadlines and reduce the risk of missing them.

Payroll tax vs PAYG withholding

Payroll tax is a state cost you pay as the employer, while PAYG withholding is income tax you deduct from employees' wages and pass to the federal government. They're often confused, but they serve different purposes.

• Payroll tax is a state tax paid by the employer as a business cost, based on total wages above a set threshold.
• PAYG withholding is a federal system where you withhold income tax from your employees' wages and pay that tax to the Australian Taxation Office (ATO) on their behalf.

As an employer, you may need to manage both payroll tax and PAYG withholding, but you calculate and report them separately.

Do payroll the easy way with Xero

Payroll tax obligations often emerge as your team expands. Basic payroll tracking can quickly become complex as wages increase and thresholds come into play.

With Xero's payroll software, you can:

• track payroll as your workforce grows
• monitor when you're approaching payroll tax thresholds
• prepare reporting data without rebuilding processes
• stay organised across the financial year

This makes it easier to move from basic payroll to more complex compliance requirements without overhauling your systems.

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FAQs on payroll tax

Find answers to questions employers often ask when dealing with payroll tax.

Who pays payroll tax, and how much is it?

Employers pay payroll tax once their wages exceed the state or territory threshold, and the amount owed depends on the local rate and threshold. In 2025-26, for example, Victoria's monthly threshold is $83,333 while South Australia's is $125,000.

Do contractors count toward payroll tax?

Sometimes. Contractor payments are often included when the contractor mainly provides labour and works regularly for your business, while genuine service-based contractors may be exempt.

What is a payroll tax grouping?

Grouping rules combine related businesses into a single employer, so their wages are added together when assessing the threshold. These rules are administered by state and territory revenue offices, and they stop businesses from splitting operations to stay under the threshold.

What happens if I exceed the threshold mid-year?

You'll need to register, start lodging returns, and account for all taxable wages paid from the start of that financial year (1 July), not just from when you crossed the threshold. Your first return should include the earlier months as well.