Are you on top of your payroll tax? Self-reporting payroll tax is commonly overlooked because its state-based differences make it complicated and hard to administer.
With the recent bushfire crisis, we have seen some changes in payroll tax across multiple states, so this is a good time to review your obligations and processes to ensure your business is compliant and paying the correct amount in payroll tax.
What is payroll tax?
Let’s do a quick recap of what payroll tax is.
Payroll tax is a state and territory-based tax (outside of the Australian Taxation Office jurisdiction), based on the total Australian monthly wages and salaries paid or payable to employees by an employer (or group of employers).
There is a payroll total threshold that the employer or group of employers will need to meet before payroll tax is payable. These thresholds are calculated on the location of your employees as to which state or territory and threshold your company is liable for.
Payroll threshold is based on total wages in the financial year (1 July to 30 Jun) and each state or territory uses different percentages to calculate the payroll tax due. You will need to check which wages are included (apprentices, contractors) in the threshold as this varies between each state and territory.
Payroll tax is paid and reported monthly with a final payroll tax reconciliation completed at the end of each financial year.
Calculating payroll tax by state
Each state or territory will have an annual wages threshold, expressed as monthly and weekly thresholds as well. Every threshold (monthly, weekly, annually) needs to be considered when calculating if your business is eligible to pay payroll.
Current as of February 2020, these are the payroll tax thresholds across each Australian state and territory:[table “11” not found /]
* The annual threshold is adjusted if you are not an employer for a full financial year.
The Australian states and territories have harmonised several key areas of payroll tax administration. Information and Revenue rulings on the harmonised key areas are accessible from here.
Bushfire payroll tax relief
The 2019/20 Australian bushfire devastation has prompted some state governments to offer payroll tax relief to ease the burden on businesses in affected areas. These measures include –
Wages (excluding certain leave payments) paid to an employee while volunteering with the Rural Fire Service (RFS) or an emergency services organisation, will be exempt from payroll tax in NSW.
The Victorian government has initiated regional payroll tax relief in ‘State Disaster’ areas. Payroll tax will be halved from the current rate (2.425%) to 1.2125% for regional employers in bushfire affected local government areas. It will be backdated to apply from 1 July 2019 and valid until 30 Jun 2022.
In South Australia
Wages paid to employees who are absent from work to volunteer as firefighters, or to respond to other emergencies, may be exempt from payroll tax in respect of any period they are engaged as a volunteer member of SACFS or an emergency services organisation responding to the bushfire emergencies.
Understanding payroll tax
Periodic changes, changing wages and a workforce across Australia make it difficult to stay up to date with the state and territory-based payroll tax. If your workforce is across Australia, depending on where your employees are located will affect your payroll tax amounts and thresholds.
Payroll tax miscalculations can happen. We recommend you gain a thorough understanding of the complexities of payroll tax to minimise costly mistakes that may also have penalties attached to them.
Hiring a payroll company or outsourcing your payroll, could be a great option that will not only reduce your risk of payroll tax mistakes but also relieve the burden on your business.
Managing payroll tax is up to you
Payroll tax is a self-assessed tax. It is the responsibility of the employer to check their liability for payroll tax on a monthly basis.
You are required to register with each relevant state or territory revenue office at the correct time and calculate your payroll tax to each revenue office each month.
Setting up a process will assist your business manage your payroll tax obligations and ensure your business stays on top and reports correctly.
Begin by assessing the states and territories in which you pay your employers. Also, if you are part of a grouped business, you will need to include payroll totals from all business groups.
- Calculate the monthly payroll totals in each state, ensuring you have included the correct wage categories (for example, in some states apprentices are excluded). You may need to use a number of payroll reports or create your own by exporting the data to collate the information to calculate your total wages.
- Review your payroll tax calculations and thresholds, preferably with a chartered accountant to double-check that your business is fully compliant with the payroll tax legislation for each state and territory.
- Enter your calculations into each state or territory jurisdiction on time and pay the amounts required. You may need to register a zero return if you do not meet the monthly threshold.
At the end of each financial year, your business will be required to submit an annual payroll tax reconciliation to ensure all payroll tax obligations have been met.
Tips for global companies when doing business in Australia
Before you set up in business in Australia and are considering which state to locate to, payroll tax may be a consideration for businesses with large workforces.
Choosing the state or territory with the highest threshold and lowest percentage of tax could help you reduce your payroll tax obligations.
Payroll tax only applies to wages payable in Australia – If you employ workers from overseas, no payroll tax is payable on wages for workers engaged and residing outside of Australia.
Need more help with payroll?
With payroll tax differences and complexities across Australia and the lack of function in most accounting software products, comprehensive procedures are recommended to ensure your business is compliant and on top of its payroll tax obligations.
Penguin Management has set up some detailed and foolproof processes for clients having trouble managing its payroll tax. Do you need a simple process? Contact the team today here.
Considering outsourcing your payroll? Our blog How to Outsource Payroll (And why you should) outlines the elements and questions to ask when choosing a payroll company.
Employing people will require knowledge of the Australian payroll system. Here’s our comprehensive payroll guide to get you started.