Australia has an estimated workforce of over 14 million people. They are spread across urban and regional areas and are employed by domestic and international businesses. Employees are typically paid weekly, fortnightly, or monthly, as employment contracts or modern awards stipulate.

Australia has a robust framework of workplace regulations, with the Fair Work Commission setting modern awards and approving enterprise agreements (often negotiated with unions) that set minimum wages and conditions for various industries. Tax residents are subject to a progressive personal income tax, ranging from 0% to 45%, depending on income levels, administered by the Australian Taxation Office (ATO).

Compliance with payroll and tax regulations is essential if you intend to do business in Australia. Adhering to these laws prevents penalties and builds trust with employees and stakeholders.

Following ATO regulations avoids significant fines and audits for local businesses. For international companies, compliance enhances their reputation with the Australian government and strengthens their market credibility.

Payroll Tax in Australia

A payroll tax is the tax an employer pays on its payroll, which includes taxes on salaries, bonuses, allowances, and other employee compensation or benefits.

Definition and Purpose of Payroll Tax

In Australia, payroll tax is a state and territory tax levied on wages paid or payable by an employer to employees when the total taxable wages exceed a threshold amount.

Unlike personal income tax, a federal tax on individual earnings administered by the Australian Taxation Office (ATO), payroll tax is managed by state and territory revenue offices, such as Revenue NSW or the State Revenue Office of Victoria.

The primary purpose of the payroll tax is to fund essential state services, including healthcare, public transport, policing, and infrastructure projects.

Employer and Employee Responsibilities

Payroll tax in Australia primarily involves employer contributions, with no direct employee deductions for this tax. Employers must register for payroll tax when their total Australian taxable wages exceed the relevant state or territory threshold. For example, in South Australia, registration is required if wages exceed the monthly threshold of $125,000 (equivalent to the $1.5 million annual threshold). As the respective state revenue office outlines, employers are responsible for lodging monthly or annual returns, performing annual reconciliations, and paying the tax due.

Employees have no direct responsibilities for payroll tax, as it is an employer’s obligation. However, employees benefit indirectly through the state services funded by this tax. Employers must ensure accurate reporting of taxable wages, including salaries, superannuation, allowances, and certain contractor payments. Non-compliance, such as underreporting or late lodgments, can result in significant penalties, including fines or audits by state revenue offices.

Payroll tax is distinct from Pay As You Go (PAYG) withholding, a federal obligation where employers withhold income tax from employee wages and remit it to the ATO. For PAYG and other federal obligations, employers must report through Single Touch Payroll (STP), streamlining tax and superannuation reporting.

Engaging an Australian PEO service or Recruitment Agency can streamline payroll tax and PAYG obligations for businesses seeking to simplify compliance. Alternatively, consulting with a tax professional ensures adherence to state and federal regulations.

Employer Payroll Tax Rates in Australia

Payroll taxes in Australia are calculated as a percentage of wages employers pay.

Breakdown of Employer Contributions

Payroll tax in Australia is a state and territory tax, with rates and thresholds varying across jurisdictions. It is administered by state revenue offices, not the Australian Taxation Office (ATO), which handles federal taxes like Pay As You Go (PAYG) withholding. Below are key payroll tax details:

  • Payroll Tax: General rates range from 4% (Tasmania’s lower band) to 8.75% (the ACT’s top rate for groups with Australia-wide wages over $150 million), depending on the state or territory, and are applied to taxable wages exceeding specific thresholds. Lower concessional rates apply to eligible regional employers in some states. For example, New South Wales: 5.45% on wages above an annual threshold of $1,200,000 (unchanged for 2026–27).
  • Superannuation Guarantee: A federal obligation, employers must contribute 12% of an employee’s qualifying earnings (which include ordinary time earnings) to a complying superannuation fund, administered under ATO regulations. Under Payday Super, from 1 July 2026 contributions must be paid each payday and received by the fund within 7 business days (longer for some new employees). This is separate from state payroll tax but is considered a taxable wage in most states.
  • Additional Surcharges: Some states apply surcharges. For example, Victoria imposes a mental health and wellbeing surcharge.

Industry-Specific Tax Rates

Australia offers industry-specific considerations and exemptions, particularly for regional businesses and certain sectors:

  • Regional Employers: States like Victoria and Queensland offer reduced payroll tax rates or a rate discount(Queensland’s 1% discount runs until 30 June 2030) for eligible regional employers.
  • Apprentices and Trainees: Wages paid to eligible apprentices and trainees are exempt from payroll tax, or attract a rebate, in several states and territories, but the treatment is not uniform. For example, South Australia taxes the wages of apprentices and trainees whose training contracts began on or after 1 July 2022.
  • Primary Caregiver Leave: Exemptions apply for wages paid for primary or secondary caregiver leave (up to 14 weeks) in states like Victoria.
  • Non-Profit and Charitable Organisations: Certain exemptions or concessions apply, such as in South Australia, where eligible charities may be exempt.

Overview of Income Tax in Australia

Australian residents are taxed on their worldwide income, while non-residents are taxed only on Australian-sourced income. The Australian Taxation Office (ATO) oversees the personal income tax.

Personal Income Tax Brackets and Rates

Personal income tax in Australia follows a progressive system, with higher earners paying higher rates. Below is the breakdown of tax brackets for the 2024-25 financial year for residents, based on annual taxable income:

Annual Income (AUD)
Tax Rate (%)
Tax Payable (AUD)
$0 – $18,200
0%
$0
$18,201 – $45,000
15%
15¢ for each $1 over $18,200
$45,001 – $135,000
30%
$4,020 plus 30¢ for each $1 over $45,000
$135,001 – $190,000
37%
$31,020 plus 37¢ for each $1 over $135,000
Over $190,000
45%
$51,370 plus 45¢ for each $1 over $190,000

These rates exclude the 2% Medicare levy. From 1 July 2027 (the 2027–28 income year), the 15% rate falls to 14%, as legislated by the Treasury Laws Amendment (More Cost of Living Relief) Act 2025.

Note: Non-residents are subject to different rates with no tax-free threshold, starting at 30% for income up to $135,000, 37% up to $190,000, and 45% thereafter. These foreign resident rates are unchanged for 2026–27: the ATO’s withholding tax tables for payments from 1 July 2026 apply the same 30%, 37% and 45% bands.

Capital gains for residents are taxed at the individual’s marginal rate (with a 50% discount for assets held over 12 months), while non-residents pay capital gains tax on Australian property at their applicable rate.

Tax-Free Allowances and Deductions

  • Work-Related Expenses: Costs like travel, uniforms, or professional memberships are deductible if directly related to earning income and properly documented. From the 2026–27 income year, eligible resident employees automatically receive a standard deduction of up to $1,000 without needing records; it is reduced by any work-related expenses they claim.
  • Charitable Donations: Gifts and donations to organizations with deductible gift recipient (DGR) status are deductible. Not all charities are DGRs, and the former $2 minimum no longer applies to gifts made from 1 July 2024.
  • Superannuation Contributions: Personal concessional contributions to superannuation (up to $32,500 in 2026–27, including employer contributions) are deductible, subject to conditions.
  • Medical Expenses: The Net Medical Expenses Tax Offset for disability aids, attendant care or aged care is no longer available; 2018–19 was the final year it could be claimed.
  • Low-Income Offsets: The Low Income Tax Offset (up to $700) reduces tax for eligible earners. The Low and Middle Income Tax Offset (up to $1,500) ended after the 2021–22 income year.
  • Dependant Offsets: Limited offsets apply for dependents, such as the Dependant (Invalid and Carer) Offset, subject to income tests.

Key Components of Payroll in Australia

Payroll Cycle and Pay Slips

Payroll in Australia typically runs on a weekly, fortnightly or monthly cycle, as set by employment contracts or modern awards. Bonuses, overtime, or annual leave loading may be processed separately.

Employers must provide pay slips within one working day of payment, detailing:

  • Gross salary
  • Pay As You Go (PAYG) withholding (income tax)
  • Superannuation contributions (12% of qualifying earnings in 2026–27)
  • Other deductions or benefits, such as allowances or salary sacrifice amounts
  • Pay slips must comply with the Fair Work Act 2009 regulations and are often issued electronically via Single Touch Payroll (STP)-enabled software.

Employer Responsibilities for Payroll Tax Compliance

Calculating and withholding PAYG income tax from employee salaries based on ATO tax tables and remitting it to the ATO via STP reporting.

Contributing 12% of qualifying earnings to employees’ superannuation funds each payday, so that contributions reach the fund within 7 business days, and reporting qualifying earnings and super liability through STP.

Common Payroll Errors and How to Avoid Them in Australia

  • Misclassifying Employees: In Australia, employees and contractors have distinct tax and superannuation obligations. Misclassifying employees as contractors can lead to penalties.
  • Incorrect Tax and Superannuation Calculations: Errors in calculating Pay As You Go (PAYG) withholding or the superannuation guarantee can result in fines or employee underpayments.
  • Breaching Minimum Wage and Overtime Rules: The Fair Work Act 2009 mandates minimum wages under industry-specific awards or the national minimum wage ($26.44 per hour or $1,004.90 per 38-hour week from 1 July 2026). Overtime must be paid at award rates (1.5x or 2x normal rates). Failing to track or pay correctly can lead to disputes and penalties.
  • Poor Record-Keeping and STP Reporting Errors: Incomplete records or inaccurate Single Touch Payroll (STP) reporting can trigger ATO audits and penalties.

Tax Treaties and Withholding Taxes

Australia’s Double Taxation Treaties

Australia has double taxation treaties (DTTs) with over 40 countries to prevent taxing the same income twice. These treaties allow foreign workers and businesses to claim tax credits or exemptions for taxes paid in Australia against their home country’s tax liability. For example, a UK resident receiving Australian dividends, interest or royalties may benefit from reduced withholding tax rates under the Australia-UK DTT.

Totalization Agreements

Australia has social security agreements with over 30 countries (32 at the time of review). The agreements mainly help people access pensions from Australia and the partner country, and some also regulate superannuation contributions to avoid double coverage for workers seconded between countries.

Withholding Tax on Foreign Income

In Australia, payments to non-residents are subject to withholding taxes, unless reduced by a DTT:

Income Type
Withholding Tax Rate
Notes
Unfranked dividends
30%
Often reduced under Double Tax Treaties (DTT)
Interest
10%
Flat rate applies unless DTT provides a lower rate

Payers must remit amounts withheld to the ATO and lodge the annual report for interest, dividend and royalty payments to non-residents by 31 October each year.

Australia Payroll Tax Calculator

The RemotePeople Global Payroll Calculator is a handy tool that calculates payroll taxes for local and foreign employees in any country. It’s free to use.