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Employee payroll tax and PAYG

Avoid legal issues – get your payroll tax right

On this page

  • Register for PAYG withholding
  • Fill out a tax file declaration form
  • Find out what other taxes might impact your business

What are my basic income tax requirements as an employer?

If you have employees, you generally withhold money from payments you make to them – which is called Pay As You Go withholding (PAYG withholding).

As an employer, you'll need to:

  • register for PAYG withholding with the Tax Office
  • calculate how much to withhold from payments – and report your calculations
  • pay the withheld amounts to the Australian Taxation Office (ATO)
  • record the amounts in your quarterly business activity statement (BAS) and annual tax return.

When an employee starts work, you'll also need to give them a tax file declaration form to complete and set up superannuation payments for new employees.

Register for PAYG 

Download a tax file declaration form

What other taxes may affect me?

Fringe benefits tax 

Fringe benefits tax (FBT) is a tax paid on certain benefits employers provide to their employees – or their employees' associates (typically family members) – in place of, or in addition to, salary or wages.

FBT is separate from income tax and is based on the taxable value of the fringe benefit. 

The term 'benefit' is broadly defined and includes any right, privilege, service or facility. So a benefit could be the use of something like a company car, ownership of something such as discounted electrical goods, or enjoyment of a privilege, for example a salary package arrangement.

Employer's guide to fringe benefits tax

Payroll tax

Payroll tax is a Victorian state tax, currently payable at the rate of 4.85 percent for metropolitan Victorian employers, and 2.425 percent for regional Victorian employers.

The State Revenue Office (SRO) collects and administers payroll tax, which is calculated on wages paid by an employer.

Victorian employers must register for and pay payroll tax if:

  • their total Australian wages exceed the Victorian general exemption level of $54,166 a month
    • or 
  • $650,000 over the full financial year 
    • and/or 
  • it is grouped with other businesses and the combined Australian wages of the group exceed the Victorian general exemption level.

Tax-free threshold increases

  • On 1 July 2018, the tax-free threshold increased to $650,000.

Visit the State Revenue Office website for further details.

What tax do I have to pay to an employee on termination? 

When someone stops working for you, these payments are taxed differently to other kinds of payments, and are called employment termination payments (ETPs).

ETPs comprise of:

  • unused rostered days off – RDOs
  • payments in lieu of notice – in place of giving an employee earlier notice of their termination
  • unused sick leave
  • gratuity – or 'golden handshake'
  • compensation for loss of job
  • compensation for wrongful dismissal
  • invalidity payments – such as permanent disability other than compensation for personal injury
  • bonafide redundancy and approved early retirement scheme payments over the tax-free amount
  • certain payments after the death of an employee.