As an employer in Australia, understanding how to calculate payroll taxes is an important part of managing your business finances. Payroll tax is calculated based on the wages you pay to your employees, including salaries, bonuses, and benefits. Each state and territory has its payroll tax rates and thresholds, which means the amount you owe can vary depending on where your business operates.

This guide will explain the steps to calculate payroll taxes in Australia, break down the necessary components, and show you how to apply the right rates.

Understanding Payroll Tax in Australia

Payroll tax in Australia is a tax that businesses need to pay to their state or territory when the total wages they pay to employees exceed a specific amount. Each state and territory administers its payroll tax, meaning the rate and threshold may vary depending on where your business is located.

Key Points to Know:

• Payroll tax is calculated on taxable wages paid to employees, contractors, and other workers in the business.
• The thresholds, above which payroll tax applies, differ across states and territories.
• The rates vary by jurisdiction, ranging from 4.75% to 6.85% in 2024.
• The tax is remitted to the respective state or territory government, not the Australian Taxation Office (ATO).

What is Included in Taxable Wages?

Taxable wages are the total remuneration or earnings paid to an employee, and they include much more than just the salary or hourly wage. Here’s what you should include in your calculations:

• Salaries and Wages: Basic salary or hourly wages paid to employees for their work.
• Superannuation Contributions: Employer-paid superannuation, including the compulsory superannuation guarantee (SG) contributions.
• Bonuses and Commissions: Any performance-based payments or sales commissions.
• Allowances: Payments made to employees to cover specific costs, like travel, housing, or meals.
• Fringe Benefits: Non-cash benefits provided to employees, such as company cars, health insurance, or subsidised loans. These are often included in taxable wages depending on the state.
• Termination Payments: Payments made when an employee leaves the company, such as severance or redundancy pay.

Steps to Calculate Payroll Taxes

Here’s a step-by-step guide to calculating payroll tax for your business:

Step 1: Determine Your Payroll Tax Threshold

The first step is to understand the payroll tax threshold for your state or territory. These thresholds determine the level of wages at which you need to start paying payroll tax. If your business’s taxable wages are below the threshold, you don’t need to pay payroll tax.
Here are some examples of thresholds for 2024 (Note: these values are subject to change):

Step 2: Calculate Total Taxable Wages

Once you have your threshold, calculate your total taxable wages by adding up the following:

• Employee salaries and wages
• Employer superannuation contributions
• Bonuses, commissions, and allowances
• Fringe benefits and termination payments

This total amount is what you’ll use to calculate payroll tax.

Step 3: Apply the Relevant Payroll Tax Rate

Next, the payroll tax rate is applied to the amount of taxable wages that exceed the threshold. The formula for calculating payroll tax is:

For example, if your business is based in New South Wales and you have $1.5 million in taxable wages, and the payroll tax rate is 5.45%, the calculation would be:

In this example, your payroll tax liability for the year would be $16,350.

Step 4: Adjust for Any Exemptions or Deductions

Some payroll tax exemptions or deductions may apply depending on your industry or specific circumstances. For example:

• Small Business Exemption: Some states offer exemptions for small businesses with taxable wages below certain limits.
• Industry-Specific Exemptions: Certain industries like not-for-profit organisations may be exempt from payroll tax or may have reduced rates.

You can check with your local state or territory revenue office for more detailed information on any available exemptions or deductions.

Payroll Tax Rates by State/Territory

Here’s a breakdown of the payroll tax rates for each state and territory in Australia as of 2024:

Note: Rates may change, so always check the most current information.

Things to Avoid in Payroll Tax Calculations

While calculating payroll taxes, it’s easy to make mistakes. Here are a few things to keep in mind:

• Not Accounting for Fringe Benefits: Ensure you include fringe benefits as part of taxable wages if required by your state.
• Misunderstanding the Thresholds: Payroll tax thresholds differ by state, so ensure you’re using the correct value for your location.
• Overlooking Exemptions: Make sure you are aware of any industry-specific exemptions that may apply to your business.
• Failing to File and Pay on Time: Missing deadlines can lead to penalties. Keep track of when payments are due and file returns regularly.

Tools and Resources for Payroll Tax Calculation

There are some online tools and software that can help you calculate payroll taxes accurately:

• ATO Payroll Tax Calculator: For general guidance on payroll tax and taxability of wages.
• State Government Payroll Tax Calculators: Each state has its payroll tax calculator, which can be used to calculate the tax in that jurisdiction (e.g., NSW Revenue, VIC State Revenue Office).
• Payroll Software: Programs like Xero, MYOB, and QuickBooks can automate payroll tax calculations based on your setup.

Example Calculation

Let’s work through an example for a business in Victoria with a total of $900,000 in taxable wages:

1. Threshold: $700,000
2. Taxable Wages: $900,000
3. Taxable Wages Exceed Threshold: $900,000 – $700,000 = $200,000
4. Tax Rate: 4.85%
5. Payroll Tax Calculation:

So, in this example, the payroll tax payable for the business would be $9,700.

Calculate Your Payroll Tax Use This Calculator

To make things even easier for you, here’s a payroll tax calculator that you can use to calculate payroll tax for your business. Simply input the total taxable wages, choose your state, and enter the threshold for your state.

This calculator will show you exactly how much payroll tax you need to pay based on the information you enter.
Here’s the Payroll Tax Calculator:

Important Payroll Tax Payment Deadlines

To avoid extra fees, it’s important to know when your payroll tax is due. Each state and territory in Australia has its due date for payroll tax payments. Be sure to mark your calendar for the right dates to stay on track.
Here are some common payroll tax due dates:

• NSW (New South Wales): 28th July
• Victoria: 21st July
• QLD (Queensland): 21st July
• SA (South Australia): 22nd July
• WA (Western Australia): 21st July
• NT (Northern Territory): 21st July
• Tasmania: 21st July
• ACT (Australian Capital Territory): 21st July

Make sure to pay your taxes on time to avoid problems.

What Happens If You Don’t Pay Payroll Tax?

Not paying payroll tax on time can lead to extra costs for your business. If you miss a payment, you could face:
Late Fees: Extra charges for missing the due date.
Interest: Your unpaid tax will build up interest, making the amount you owe higher.
Legal Issues: If you don’t pay over time, it could lead to legal action.
To avoid these problems, be sure to pay your payroll tax on time.

Conclusion

Accurately calculating payroll taxes is an essential responsibility for employers in Australia. Understanding what constitutes taxable wages, applying the correct rates, and ensuring compliance with state-specific rules can save businesses from costly penalties. By following the steps outlined in this guide, you can confidently manage payroll tax calculations and focus on growing your business.

For more information, or if you need assistance, consider consulting with a payroll expert or using dedicated payroll software to simplify the process.