7 min Taking a company under your wing in Australia in 2025 means playing multiple roles at the same time. Making clients satisfied, leading groups, and being caught up on the constantly changing tax legislation. A question that continues to come up from business leaders, HR professionals, and labor hire firms is straightforward but essential: how are payroll taxes calculated?
Whether you’re handling payroll for small businesses, managing a labour supply service, or expanding globally with an Employer of Record (EOR) partner, understanding “how are payroll taxes calculated?” isn’t just a tick on your list, it’s about keeping your business compliant and your employees confident they’re paid correctly.
This guide walks through “how are payroll taxes calculated?” step by step.
Step 1: Start with Gross Pay
Payroll tax calculation always starts with gross pay, the amount of pay before any deductions. Gross pay may include:
- Salaries or hourly pay (depending on your industry model)
- Bonuses, commissions, or allowances
- Labour hire arrangements where staff are hired through a labour hire agency or labour hire recruitment structure
After processing gross pay, you can proceed to applying the right tax rates.
Step 2: Learn Payroll Tax Rates in 2025
So how are payroll taxes calculated these days in Australia? Tax levels differ according to the state or territory you’re in, and the cut-offs change frequently. Payroll taxes pay for fundamental schemes like Medicare, superannuation, and unemployment insurance.
For employers, this entails:
- Withholding income tax (PAYG) from workers’ wages
- Contributing to superannuation (currently 11% in 2025, rising annually)
- Paying state payroll tax if your overall wage bill exceeds the state threshold
As a comparison, companies using payroll services in Australia are automatically updated whenever the Australian Taxation Office (ATO) adjusts rates. Those operating internationally, such as with payroll services Singapore, will have entirely different regulations, and this is why so many companies now use international payroll services.
Step 3: Account for Withholding and Deductions
Employers are also supposed to withhold certain deductions:
- PAYG tax – employee income and tax file number declaration
- Medicare Levy – 2% of taxable income for most residents, with concessions under specific levels
- Superannuation – employer contributions in addition to wages
- Other deductions – e.g. salary sacrifice arrangements or union fees
Accuracy is the challenge for payroll for small companies in 2025. ATO penalties are initiated even by slight miscalculations when they are repeated mistakes or mistakes that have arisen due to deliberate misreporting. For that reason, countless businesses, from new startups to mature labour hire businesses, increasingly rely on online payroll options or outsourced payroll management services to remain compliant.
Step 4: Employer Obligations Beyond Paycheques
Employers are not only responsible for deductions, but also employer-specific taxes and insurances, including:
- Workers’ compensation insurance (compulsory in most industries)
- Payroll tax payable to state governments once wage thresholds are exceeded
- Superannuation guarantee contributions
For labour hire agencies, this becomes especially important, since payroll tax liabilities can apply both at the agency and the client level depending on contracts. Working with an Employer of Record can help simplify compliance, particularly if you’re expanding operations internationally.
Step 5: Filing and Reporting Payroll Taxes
Once payroll taxes are computed, companies should report to the ATO and pay tax on time. In Australia, the majority of employers already employ Single Touch Payroll (STP), which has the ability to automatically report salary, PAYG, and super details each pay period.
The transition to STP Phase 2 in 2025 implies that compliance is tighter, yet more transparent. Digital reporting ensures errors quickly show up, minimizing end-of-year surprises.
Step 6: Remaining Ahead of Regulatory Adjustments
One of the most challenging aspects of running Australian payroll is staying current. Tax thresholds, rates, and super contributions change regularly.
Firms employing payroll system software or payroll management services outsourcing are more likely to remain compliant. Rather than having to monitor each ATO change manually, they get real-time compliance notices.
Frequently Asked Questions: Payroll Taxes Edition
1. What is the tax-free threshold in Australia in 2025?
The first $18,200 remains tax-free. For casual employees or for those who have multiple employers, it’s important to choose which employer offsets the threshold — or too little will be held back in tax. At Procloz, we assist small businesses in getting this done correctly so they don’t get an unpleasant surprise at tax time.
2. Do casual employees pay payroll tax differently?
Not exactly, tax remains on estimated yearly earnings. Casual hours, however, vary, and so the withholding may appear excessive week by week. At year’s end, it’s reconciled by the actual ATO, and most casuals end up with refunds. Payroll for small business tools help employers avoid making pitfalls here, though, as the system calculates withholding accordingly.
3. How can employers keep payroll compliant without getting bogged down in admin?
Numerous Australian SMEs currently outsource to compliance specialists or payroll management services or labour hire companies. By working with Procloz, you are accessing automated payroll software, human resources expertise, and worldwide payroll know-how so you can do what matters most: grow your business rather than getting bogged down in tax tables.
The Takeaway
So how are payroll taxes calculated in 2025? To summarise: start with gross pay, apply the correct tax rates and deductions, and comply with your filing obligations. Easy enough, but in practice, constant regulation changes, state variations, and global expansion make it all more complicated.
That’s where solutions like Global Payroll services, web-based payroll systems, or even Employer of Record services come in. They simplify compliance, free up time, and bring peace of mind in knowing your staff is always getting paid right and on time.
If you’re running payroll for small businesses or managing labour hire recruitment across Australia, the most brilliant idea for 2025 is to step up your payroll game, so you can hire for your business, not wrestle with spreadsheets.
