Australian employers manage four major payroll-related tax and contribution obligations: PAYG withholding, Superannuation Guarantee, state payroll tax, and Fringe Benefits Tax
Each one is administered by a different authority, runs on a different schedule, and carries its own penalty regime. Getting one wrong does not just create a single filing problem. It creates cascading exposure across the Australian Taxation Office (ATO) and eight state revenue offices simultaneously.
This guide explains how to determine payroll taxes in Australia. It covers current rates, worked examples, and the compliance sequence every employer must follow before processing a single pay run.
What Payroll Taxes Do Australian Employers Actually Pay?
There are four distinct obligations. Each has its own regulator, rate, and lodgement deadline.
- Pay As You Go (PAYG) Withholding: Federal income tax withheld from employee wages and remitted to the ATO.
- Superannuation Guarantee (SG): 12% of ordinary time earnings, paid into the employee’s chosen super fund.
- State Payroll Tax: A state-administered tax on total wages above a tax-free threshold. Rates and thresholds differ by state.
- Fringe Benefits Tax (FBT): A 47% tax on the grossed-up value of non-cash benefits provided to employees.
The ATO administers PAYG, SG, and FBT. State revenue offices handle payroll tax separately for each jurisdiction.
For global employers unfamiliar with this structure, payroll compliance in Australia is a useful starting point before attempting to calculate any individual obligation.
How Is PAYG Withholding Calculated in 2026?
PAYG withholding is the income tax an employer deducts from each employee’s pay and remits to the ATO. The first $18,200 of a resident employee’s income falls under the tax-free threshold. Beyond that, withholding rates scale from 16% to 45% depending on the bracket.
The calculation sequence:
- Confirm the employee’s Tax File Number (TFN) and residency status during onboarding.
- Apply the correct ATO tax table based on pay frequency (weekly, fortnightly, or monthly).
- Adjust for any HELP or HECS debt, Medicare levy, and applicable tax offsets.
- Report each pay event through Single Touch Payroll (STP) Phase 2.
- Remit withheld amounts to the ATO by the activity statement due date.
Under STP Phase 2, gross wages must be itemized into overtime, allowances, bonuses, and leave loadings. Combining these into a single figure is a reportable error that triggers ATO review.
For businesses managing multi-state teams, Australian payroll services reduce the risk of STP itemization errors by keeping ATO-compliant reporting as a managed function rather than an in-house task.
What Is the Superannuation Guarantee Rate for 2026?
The Superannuation Guarantee (SG) rate is 12% of ordinary time earnings as of 1 July 2025. This is the final rate after a decade-long phased increase from 9.5%.
Two changes employers must prepare for immediately when it comes to Payday Super 2026:
- Payday Super (effective 1 July 2026): Super contributions must be paid with every payroll cycle, not quarterly.
- Seven-day rule: Funds must reach the employee’s account within 7 business days of payday. Late arrival triggers the Superannuation Guarantee Charge (SGC) even if the payment was sent on time.
The SGC is not tax-deductible. It includes the unpaid super, interest at 10% per annum, and an administration fee per employee per quarter. The ATO collected over $1.1 billion in unpaid super through compliance action in 2024.
How Is State Payroll Tax Calculated in Australia?
State payroll tax applies to total Australian wages above each state’s tax-free threshold. The tax is calculated only on the amount that exceeds the threshold, not the entire wage bill.
The formula is straightforward:
(Total taxable wages minus tax-free threshold) multiplied by the payroll tax rate equals payroll tax payable.
Every state applies its own rate, threshold, and grouping rules. This is where most foreign employers get caught out.
Australian State Payroll Tax Rates and Thresholds (2026)
|
State / Territory |
Annual Threshold |
Standard Rate |
|
NSW |
$1,200,000 |
5.45% |
|
Victoria |
$1,000,000 |
4.85% |
|
Queensland |
$1,300,000 |
4.75% |
|
South Australia |
$1,500,000 |
0% to 4.95% (sliding) |
|
Western Australia |
$1,000,000 |
5.5% |
|
Tasmania |
$1,250,000 |
4.0% to 6.1% |
|
ACT |
$2,000,000 |
6.85% |
|
Northern Territory |
$1,500,000 |
5.5% |
When Does a Business Need to Register for State Payroll Tax?
Registration is required in any state where your monthly wage bill exceeds that state’s monthly threshold, even if you remain below the annual threshold by year-end.
In NSW for 2025-26, registration is triggered the moment monthly wages exceed $101,918 in a 31-day month. The deadline to register is typically within 7 days of crossing the threshold.
Multi-state employers face an additional complication. Payroll tax thresholds are apportioned based on each state’s wages relative to total Australian wages.
A business with $900,000 in NSW wages and $2,100,000 in interstate wages does not receive the full $1,200,000 NSW threshold. It receives only $360,000 of it. Tax applies to the remaining $540,000.
This catches almost every foreign employer building a multi-state presence in Australia. Businesses expanding across NSW, Victoria, and Queensland will typically register in all three states within the first year.
Step-by-Step: How to Determine Payroll Taxes for a New Australian Hire
This is the compliance sequence every employer must complete before the first pay run.
Step 1: Classify the worker correctly. Determine whether the worker is an employee or contractor. The ATO uses a multi-factor test based on control, integration, and the right to delegate. Misclassification triggers PAYG, SG, and payroll tax back-assessments simultaneously.
Step 2: Register for PAYG withholding. Apply for a PAYG withholding account through the ATO Business Portal before paying the first employee.
Step 3: Set up STP Phase 2 reporting. Use STP-enabled payroll software to report wages, tax, and super data to the ATO on each pay run. Manual lodgement is not compliant under current STP requirements.
Step 4: Check state payroll tax registration requirements. Monitor monthly wages against each relevant state’s monthly threshold. Register within the state-specified window once exceeded.
Step 5: Calculate superannuation contributions. Apply 12% to ordinary time earnings. Pay to the employee’s chosen super fund quarterly (or per pay cycle from 1 July 2026).
Step 6: Identify and gross up fringe benefits. Track non-cash benefits monthly. Apply the correct gross-up rate and lodge an FBT return by 21 May each year.
Step 7: Lodge monthly and annual payroll tax returns. Most states require monthly returns by the 7th of the following month and an annual reconciliation by 21 July.
What Happens If You Get Australian Payroll Taxes Wrong?
Penalties apply across both federal and state regulators. They do not wait for an audit to arrive.
ATO penalties:
- PAYG underpayment: 25% to 75% of the shortfall plus interest.
- SG shortfall: Superannuation Guarantee Charge, which is not tax-deductible.
- FBT error: 25% to 75% of underpaid tax.
State revenue office penalties:
- Failure to register: penalty tax up to 25% of unpaid amount plus interest.
- Late lodgement: $100 to $500 per day in most states.
- Intentional understatement: penalty tax up to 75%.
The Fair Work Ombudsman recovered $358 million for more than 249,000 underpaid workers in 2024-25. Most of it came from award misclassification and incorrect overtime calculations, not deliberate non-compliance.
When Should Global Employers Use an EOR Instead?
If your business does not have an Australian entity, an Employer of Record (EOR) takes on the full payroll tax burden on your behalf.
The EOR becomes the legal employer in Australia under its own Australian Business Number (ABN). That means the EOR registers for PAYG, SG, and state payroll tax, lodges all STP and FBT returns, manages multi-state threshold tracking, and holds the compliance liability for any misclassification or underpayment.
Entity setup through the Australian Securities and Investments Commission (ASIC) typically takes 6 to 12 weeks. EOR activation takes days.
For most businesses hiring fewer than 20 Australian employees, EOR is the lowest-cost compliant route to market.
How Procloz Manages Australian Payroll Tax Obligations
Managing PAYG, SG, state payroll tax, and FBT across all eight Australian states and territories requires jurisdiction-level tracking that most international businesses are not set up to handle internally.
Procloz manages the full Australian payroll compliance cycle as a managed operation. This includes STP Phase 2 reporting, real-time state threshold monitoring, automated SG calculations, and FBT gross-up processing. For businesses without an Australian entity, Procloz operates as the EOR, covering the full employment lifecycle from hiring through to offboarding across every state.
Contact us for assistance now.
How to Determine Payroll Taxes in Australia: Frequently Asked Questions
Q1. What is the current superannuation guarantee rate in Australia?
The Superannuation Guarantee rate is 12% of ordinary time earnings from 1 July 2025. From 1 July 2026, Payday Super requires contributions to be paid each pay cycle, not quarterly.
Q2. Do I need to pay payroll tax if my wage bill is below $1 million?
In most states, no. Payroll tax only applies once wages exceed the state threshold. For multi-state employers, thresholds are apportioned, so you may still owe tax in a state even below the headline figure.
Q3. How do I calculate payroll tax across multiple Australian states?
Calculate total Australian wages first. Apportion each state’s threshold by the ratio of that state’s wages to your total. Apply the relevant state rate to wages above the apportioned threshold.
Q4. What is the difference between PAYG and payroll tax in Australia?
PAYG is a federal tax withheld from employee wages and paid to the ATO. Payroll tax is a state tax paid by the employer on total wages above a threshold.
Q5. When are Australian payroll tax returns due?
Monthly returns are due by the 7th of the following month in most states. The annual reconciliation is due 21 July. FBT returns are due 21 May each year.
