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Employee payroll tax and PAYG

Avoid legal issues, get your payroll tax right.

On this page

  • Register for PAYG withholding
  • Use tax file declaration form
  • Find out what other taxes might impact you

Basic income tax requirements

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

As an employer, you will need to:

  • register for PAYG withholding with the Tax Office
  • calculate how much to withhold from payments and report
  • pay the withheld amounts to the Tax Office
  • 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 

Tax file declaration form

Other taxes that may affect employers

Fringe benefits tax (FBT)

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

Victorian employers must register for and pay payroll tax if their total Australian wages exceed the Victorian general exemption level of $47,916 a month or $575,000 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.

The tax-free threshold will increase to $600,000 on July 1 2017, to $625,000 on July 1 2018, and to $650,000 on July 1 2019.

Check the State Revenue Office website for further details.

Ending Employment Tax

Payments paid to an employee on termination of employment are Eligible Termination Payments (ETPs). When someone stops working for you these payments are taxed differently to other kinds of payments.

When terminating someone's employment, ETPs consist 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 (permanent disability, other than compensation for personal injury)
  • bona fide redundancy and approved early retirement scheme payments over the tax free amount
  • certain payments after the death of an employee.