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Understanding Payroll Tax

While you may not be liable for payroll tax, it’s worth being familiar with it so you can keep on top of any new obligations or impacts as your business grows. 

This is particularly important if you are expanding your business and workforce. With wage increases and changing superannuation rates, you may find your business is approaching or even exceeding the tax-free threshold.  

Payroll tax can also indirectly impact you if you are a contractor. Understanding the circumstances when contractor payments are exempt and associated recordkeeping requirements can help you avoid the tax being passed on. 

What is payroll tax? 

Payroll tax is a state tax imposed on employers based on their total gross wages paid to employees and includes: 

  • Superannuation contributions 
  • Salary sacrificed amounts 
  • Allowances 
  • Fringe benefits 
  • Contractor payments (unless an exemption applies) 

For a full list of taxable wages, refer to Revenue NSW’s taxable wages page.  

Who has to pay? 

In NSW, the annual tax-free threshold for the 2024-25 financial year is $1.2 million and the rate is 5.45 per cent. For example, an employer whose total payroll is $1.5 million, will pay 5.45 per cent on the $300,000 that exceeds the $1.2 million threshold, or $16,350 in tax. Find out more about rates and thresholds (including prior tax years). 

If you exceed the monthly tax-free threshold you must register for payroll tax. For more information on how to register, refer to Revenue NSW’s Register for payroll tax page. 

Common control 

Businesses that are owned or controlled by common people/entities will be grouped for payroll tax. Businesses that also share employees under an arrangement or have employees who solely work in the other business will also be grouped. This means that only one business will be able to claim the tax-free threshold, with the other(s) paying tax on the entire wages they pay. Small business operators who own or control multiple businesses and have employee sharing arrangements will need to review their business structures to find out if the grouping provisions apply. 

More information can be found on Revenue NSW’s grouping page. 

When do you have to pay? 

Monthly payroll tax payments need to be made by the 7th of the following month in which wages were paid. For example, payroll tax for wages paid in July must be paid by the 7th of August. 

The annual return and any payment must be lodged and paid by 28 July for the relevant financial year ending 30 June. This means the annual return for the 2024-25 financial year must be lodged and paid by 28 July 2025. 

If your annual payroll tax liability is $20,000 or less, you can have your lodgment frequency changed to only lodge and pay an annual return. 

For more information on when and how to pay, view Revenue NSW’s lodge and pay page. 

Common errors 

Revenue NSW list the following as common errors that result in businesses being selected for payroll tax audits: 

  • not lodging as a payroll tax group member or not declaring group members wages in returns  
  • incorrectly claiming contractor exemptions 
  • not correctly declaring fringe benefit payments or superannuation payments 
  • incorrectly claiming a rebate on ineligible trainees or apprentices. 

Certain industries have unique payroll tax issues or complex arrangements. View Revenue NSW’s industry specific guidance page for more information.   

Contractor payments and exemptions  

All contractor payments are liable for payroll tax unless one of the seven contractor exemptions apply. The most common exemptions are: 

  • the contractor provides services to the principal for less than 90 days 
  • services are performed under the contract by two or more people 
  • the contractor who performs the work provides those types of services to the public generally during the financial year. 

For more information on all seven of the contractor exemptions and the conditions needed to qualify, visit Revenue NSW’s contractors page.  

Knowing when a contractor exemption applies and what records need to be kept can help small business contractors prove to their clients that they qualify for the exemption. This can prevent the tax from being passed on. 

Top tips for small employers near the payroll tax threshold 

Here are some tips that might be helpful if your business is not yet liable for payroll tax but is approaching the payroll tax threshold.  

Subscribe for updates to keep informed 

  • You can subscribe for payroll tax updates at Revenue NSW’s website. 

Onboarding information  

  • You can access Payroll tax fundamentals videos via Revenue NSW’s Education library. 
  • Revenue NSW provides a checklist or decision tree to help taxpayers review all aspects of payroll tax and whether any apply to their business. You can access the decision tree on the Payroll tax assist page. 

Limitations of accounting software  

  • Be mindful of solely relying on accounting software. Software will help in totaling up standard definitions of wages, such as salaries, commissions and superannuation. But manual calculations may be necessary for other taxable amounts such as fringe benefits, allowances (accommodation and motor vehicle allowances have exempt components) and liable contractor payments.  

Payroll tax wage definitions can be different to BAS and iCare definitions  

Steps to track payments 

  • Create Payment Categories: Create different types of payments categories within your accounting software for taxable wages and regularly review these to ensure accurate tracking of taxable amounts. 
  • Regularly Reconcile: If you are approaching the tax-free threshold, consider conducting monthly or annual reconciliations of payroll records.  
  • Track Invoices: For contractors, track payments and analyse whether these payments meet the contractor exemptions. Make sure to keep records or evidence to support your claim. 
  • Engage a Professional or Reach out to Revenue NSW: Consider engaging a tax professional or accountant familiar with payroll tax to help ensure compliance and provide guidance on taxable payments. Alternatively, reach out to the Payroll Tax Team for any questions you may have. They can be contacted on 1300 139 815 or payrolltax@revenue.nsw.gov.au  

Compliance Audits 

  • Be aware the tax years reviewed by Revenue NSW for audits will generally cover the current financial year as well as the previous four.  
  • Revenue NSW will generally impose a 25 per cent penalty tax on the tax shortfall amount along with late payment interest at the market rate. However, there may be discounts on the penalty tax amount for new payroll tax customers who fully cooperate during the audit. For further information refer to the ‘Commissioner’s Practice Note 012: Remission of penalty tax applied to new payroll tax customers’ 
  • If you are aware of any mistakes before an audit commences, you can make a voluntary disclosure to avoid penalty tax (however late payment interest will still apply): PTA036: Payroll tax: interest and penalty tax  

Recent updates 

Revenue NSW has updated its payroll tax website for easier navigation and improved access to detailed information. For those businesses already registered, you can now view and update your details in Payroll Tax Online. For more information view the News and media releases page.