In 2024 alone, over 30% of SMEs in New South Wales were fined for payroll tax errors. Avoiding such mistakes requires knowing your state’s payroll tax rates, thresholds, and compliance rules.
This state-level tax applies when your total wages exceed certain thresholds, and missing your obligations can lead to hefty penalties, audits, and even reputational risk.
Staying compliant with payroll tax rates by state and meeting registration and lodgment requirements helps avoid hefty penalties and audits. This guide explains everything you need to know about payroll tax compliance and how to manage tax duties efficiently in Australia.
What Is Payroll Tax in Australia?
Payroll tax in Australia is a state and territory-based tax imposed on businesses when their wages exceed the set threshold for that region.
Key difference: Unlike PAYG withholding or income tax, which are federal and deducted from employees, payroll tax is an employer obligation based on wages, bonuses, and some contractor payments, but does not include superannuation contributions.
It helps fund state services like infrastructure, education, and health.
Who Must Pay Payroll Tax?
In Australia, payroll tax is paid by employers once their total wages go over the threshold set by their state or territory. Employees don’t pay this tax, it’s an employer responsibility.
Who Must Pay Payroll Tax:
- Employers whose wage bill is above the state or territory threshold.
- Businesses with employees in more than one state or territory (if over the limit).
- Grouped businesses, where combined wages across related entities exceed the threshold.
Who Doesn’t Pay Payroll Tax:
- Small businesses under the wage threshold.
- Sole traders or very small employers who don’t meet the limit.
- Certain not-for-profits and charities, depending on state exemptions.
Pro Tip: Don’t assume contractors are exempt, many states include them unless strict rules are met.
Recommended Read: Payroll Management Strategy
State-by-State Payroll Tax Rates and Thresholds (2025 Update)
Since payroll tax is state-based, rates and thresholds differ. Here’s the 2025 updated comparison:
New South Wales (NSW)
In New South Wales, employers must pay payroll tax if their annual taxable wages exceed $1,200,000. The payroll tax rate in NSW is 5.45% on wages above this threshold.
- The tax-free threshold applies proportionally if your business operates only part of the year or in multiple states.
- Registration is required once monthly payroll exceeds the threshold.
- Businesses with wages spread across states will have their threshold apportioned by the wage ratio paid in NSW.
Victoria (VIC)
For Victoria, the payroll tax threshold is $1M annually, with employers paying a tax rate of 4.85% on wages exceeding this limit.
- Victoria’s low threshold makes payroll tax applicable to many small-to-medium businesses.
- The state also applies a monthly registration requirement once wages exceed the threshold.
Queensland (QLD)
Queensland sets its payroll tax threshold at $1,300,000 with a tax rate of 4.75%.
- The threshold is calculated annually but employers must register and pay monthly or quarterly depending on wage size.
- Queensland offers certain exemptions and rebates for regional businesses.
Other States Comparision Table
State/Territory | Annual Threshold (AU$) | Tax Rate (%) |
New South Wales (NSW) | $1,200,000 | 5.45 |
Victoria (VIC) | $1,000,000 | 4.85 |
Queensland (QLD) | $1,300,000 | 4.75 |
Western Australia (WA) | $1,000,000 | 5.5 |
South Australia (SA) | $1,500,000 | 0 – 4.5 (progressive) |
Tasmania (TAS) | $1,250,000 | 4 – 6.1 (progressive) |
Northern Territory (NT) | $2,500,000 | 5.5 |
Australian Capital Territory (ACT) | $2,000,000 | 6.85 |
- WA has a $1 million threshold, with a flat 5.5% rate on taxable wages above this.
- SA and TAS use progressive tax rates, meaning the payroll tax rate increases as the total wages rise above the threshold.
- ACT has the highest payroll tax rate at 6.85%, with a relatively high threshold of $2 million.
- NT applies a 5.5% tax rate with a $1.5 million threshold as well.
Recommended Read: Single Touch Payroll For Small Businesses
How to Register and Lodge Payroll Tax?
Employers must register for payroll tax once their wages exceed the state’s threshold. Registration is done through the relevant State Revenue Office. Employers also need to lodge regular returns (monthly or quarterly, depending on the state) and pay payroll tax by due dates to avoid penalties.
When to Register Payroll Tax in Australia?
You need to register for payroll tax when your total wages go above the threshold set by your state. This could be based on your monthly or yearly wages. Don’t wait too long because late registration can lead to penalties.
Registration Process
- Go to your State Revenue Office portal
- Fill in your business details and give an estimate of your payroll (how much you pay your employees).
- Submit the form online
- You will receive confirmation and the lodgment schedule telling you when to file your payroll tax returns and make payments.
Pro Tip: Register as soon as you expect to exceed the threshold, don’t wait until you’re already over.
Lodging & Payment
- Lodgments are monthly, quarterly, or annually, depending on your state
- Payments are due on the specified date (usually the 7th of the following month)
Missed deadlines = penalties + interest.
Confused about payroll tax registration? ISM Accountants handle payroll tax compliance across all states saving you time and avoiding costly mistakes.
How to Calculate Payroll Tax in Australia?
Payroll tax in Australia is calculated by applying your state or territory’s tax rate to the portion of your total wages that exceeds the local threshold.
Step-by-Step Formula
- Aggregate total wages and taxable payments for the period
- Deduct exemptions (parental leave, redundancy, etc.)
- Check your state’s payroll tax threshold and subtract it from the total wages
- Multiply excess wages by the tax rate to find out how much tax you owe.
Common Mistakes
- Misclassifying contractors as employees
- Forgetting to aggregate wages across related entities
- Double-counting allowances
Tools & Software
Using payroll software Australia like Xero, MYOB, QuickBooks, or STP systems, makes compliance easier and reduces human error.
Example: A NSW business paying $2M in wages
($2,000,000 – $1,200,000) x 5.45% = $43,600 payroll tax
Penalties and Risks of Non-Compliance
Non-compliance with payroll tax can lead to:
- Penalties can be severe in some cases up to 75% of the unpaid tax.
- Interest charges on late payments
- Audits from state revenue offices
Payroll Tax vs Other Employer Taxes
Aspect | Payroll Tax | PAYG Withholding | Superannuation |
Taxpayer | Employer | Employer (deducts from employee) | Employer |
Base | Wages above threshold | Employee earnings | 11.5% of wages |
Authority | State Revenue Offices | ATO | ATO |
Purpose | State revenue | Income tax collection | Retirement savings |
Recommended Read: How to Prepare for Tax Season in Australia?
Practical Tips for Employers to Manage Payroll Tax in Australia
- Keep accurate payroll records
- Automate with payroll software
- Set payment reminders to avoid missing deadlines
- Engage ISM Accountants for compliance and optimisation
Common Mistakes to Avoid During Payroll tax
Many businesses make errors with payroll tax that can be costly. Common mistakes include:
- Failing to register once wages exceed the state or territory threshold.
- Misclassifying employees and contractors, affecting taxable wages.
- Omitting taxable components like bonuses, allowances, or super.
- Not grouping related entities, which can push combined wages over the threshold.
- Ignoring state-specific rules, since rates and thresholds vary across Australia.
How ISM Accountants Support Payroll Tax Compliance?
ISM Accountants helps businesses across Australia stay fully compliant with payroll tax. We provide expert guidance on employer obligations, handle registration and lodgment with state authorities, monitor compliance for SMEs and larger businesses, and optimise payroll structures to reduce errors and risks.
In addition to payroll tax, we offer a range of services to help businesses grow:
- Business Advisory – Strategic guidance to manage and expand your business.
- Tax Returns – Preparation and lodgment for individuals, businesses, and trusts.
- Loan Management – Assistance with loan applications and financial planning.
- New Business Registration – Help with setting up new companies and structures.
- Bookkeeping Services – Accurate record-keeping and reporting to simplify compliance.
Recognised as one of the best tax accountants in Perth, we provide personalised support to small businesses across multiple locations:
With ISM Accountants, small businesses can confidently manage payroll tax and other accounting needs while focusing on growth.
Final Thoughts
Payroll tax in Australia isn’t optional, it’s a legal responsibility for employers. With different thresholds, rates, and rules across states, mistakes can be costly.
Keeping up with registration, calculation, and lodgment requirements ensures compliance and avoids penalties.
Payroll tax compliance doesn’t need to be stressful. ISM Accountants ensure your business meets obligations, avoids penalties, and stays tax-ready. Contact us today!!
FAQs on Payroll Tax in Australia
The payroll tax rate ranges from 4.75% to 6.85% in 2025. Each state sets its own threshold and rate, so it’s best to check the specific rates where your business operates.
Not all employers need to register; only those whose total Australian wages exceed the state’s threshold. If your wages are below this limit, you’re usually exempt from payroll tax.
Certain payments like superannuation contributions, workers’ compensation, and some contractor payments may be exempt. It’s important to review your payroll carefully to identify any exemptions.
No, payroll tax rates, thresholds, and rules differ across states and territories. YYou’ll need to make sure to understand the specific requirements for the state where your business pays wages.
Small businesses can manage payroll tax by keeping accurate wage records, using payroll software, and consulting with accountants like ISM Accountants to ensure compliance and optimise tax obligations.
If an employer doesn’t pay payroll tax can result in penalties, interest charges, and legal action from state revenue offices. It’s crucial to stay on top of your obligations to avoid these issues.
Absolutely, ISM Accountants specialise in payroll tax compliance and can manage your registrations, calculations, and lodgements, making the process hassle-free for your business.
