6 min Suppose you have just employed your first employees in Australia! Excitement is high, contracts are signed, you will now build your dream team and the payroll period begins. Here is the first payslip and you see acronyms like PAYG, FBT, STP and state-based payroll taxes governed by state based legislation depending on the home location of your employee.
You thought a payslip would be simple, but you now find yourselves dealing with a myriad of rules, deadlines and compliance checks. A mistake can mean penalties, scrutiny from the ATO and a lack of trust from employees. This is why knowing how to correctly calculate payroll taxes in Australia is not an HR responsibility, it is a way of life for every employer.
The Fundamentals: What Payroll Taxes Exist in Australia?
Before we get into the “how” – here are the main taxes every employer should be aware of:
- PAYG Withholding – Withhold employee income tax and report it to the ATO
- Superannuation Guarantee – Starting July 1st 2025, employers are required to contribute 12% of ordinary time earnings to super funds.
- Payroll Tax – a tax charged by the States when your payroll exceeds a certain threshold (e.g. NSW – $1.2M threshold, 5.45% rate, VIC – $700k threshold, 4.85% rate, QLD – $1.3M threshold, 4.75% rate.)
- Fringe Benefits Tax (FBT) – tax imposed on non-cash benefits such as cars, membership, or tickets to an event.
- Leave Loading and Termination Payments – both are taxable but sometimes reported incorrectly unless you automate the process.
Step by Step: How to Calculate Payroll Taxes
1. Properly Classify Employees
A common source of payroll error is classifying employees as contractors. Using onboarding software enables you to check TFNs, superannuation choices, and residency status up front.
2. Register for PAYG and STP
For your business, register for PAYG withholding and register on STP reporting. Today, payroll software in Australia can offer native STP integration.
3. Use STP Compliant Payroll Software
Software such as Xero, MYOB, or KeyPay will automatically calculate PAYG, superannuation and leave entitlements. These tools also automatically apply tax rates and thresholds in real time.
4. Monitor State Payroll Tax Requirements
Each state has different thresholds and rates:
NSW – 5.45% over $1.2M
VIC – 4.85% over $700,000
QLD – 4.75% over $1.3M
Real-time reporting dashboards will inform the employer once they reach a threshold.
5. Include Fringe Benefits
FBT is calculated on grossed up value of benefits and AI accounting platforms including Xero are able to automatically identify fringe benefits and establish liabilities accordingly.
How Technology Facilitates Payroll Taxes
Payroll tax compliance is not just about knowing rates, it is all about making accurate decisions under pressure. Sophisticated payroll engines can:
- highlight invalid TFNs or super fund information
- regularly get threshold updates from the ATO
- notify employers when wage bills close to the state tax threshold.
- dynamically measure redundancy and termination liabilities
With each advance in automation, errors can be rectified before they breach compliance.
Contractor and Freelancer Pitfalls
Misclassifying a contractor fits in as another common trap. Automatic tools that authenticate ABNs, ATO registries, and enforce agreements all assist in making sure you do not unpaid PAYG or super obligations.
Payroll Services – Australia versus Overseas
Overseas businesses are often shocked to find that payroll services in Australia are more complex than their countries. In New Zealand, there is no state payroll scope, so compliance is relatively seamless. Each state in Australia has its own compliance, regulator, and threshold. For global businesses, reliance on local expertise is an advantage.
When to use Employer of Record Services
If you are uncertain how to determine payroll taxes as your business scales nationally or internationally, then an Employer of Record is a strategy to make it less difficult.
An Employer of Record assists in:
- hiring and contracts
- payroll taxes and superannuation
- multi-jurisdictional compliance
- employee benefitsÂ
Ultimately, this provides simplicity, compliance, and enables leaders to focus on growing the
organisation.
Why pick Procloz for global payroll management
At Procloz, we turn payroll into a strategic advantage. Our global payroll solutions and employer of record services help ensure compliance with multiple jurisdictions, without the stress of disparate manual systems. Through real-time tracking, artificial intelligence-driven error detection, and built-in audit trails, we give you the peace of mind and confidence needed to run payroll in compliant ways.
Given today’s environment, where regulatory non-compliance can be disruptive and costly, the only remaining question is: can you afford not to automate?
Partner with Procloz today to simplify payroll, drive compliance, and protect your business.
