Tax should be a concept well understood by all employers, especially when it pertains to payroll compliance. Failure to understand payroll tax and its implications of being non-compliant will diminish your capacity to best manage your business’ unique operation. At i3Group, we are often asked ‘what is payroll tax’ which, although a broad question, can be summarised into the following segments below for ease of understanding.
How is payroll tax calculated?
Payroll Tax is a State based tax calculated on wages paid or payable by an employer to its employees and “deemed” employees. All States and Territories are obligated to pay payroll tax based on the following 2018-2019 thresholds:
Annual Threshold: $650,000
Rate Payable: 4.85%
New South Wales
Annual Threshold: $850,000
Rate Payable: 5.45%
Annual Threshold: $1,100,000
Rate Payable: 4.75%
Annual Threshold: $1,500,000
Rate Payable: 0-4.95%
Annual Threshold: $2,000,000
Rate Payable: 4.0%
Annual Threshold: $1,500,000
Rate Payable: 5.5%
Who has to pay payroll tax?
Each employer has an obligation to self-assess their liability on a monthly basis and perform an annual reconciliation at the end of each financial year (due by 21 July). When an employer’s total wages exceed the relevant threshold levels, payroll tax is payable. Employers must register for payroll tax with the relevant State Revenue Office (SRO) where threshold levels have been exceeded. Employers can choose to manage payroll tax directly, through a tax professional, or alternatively with the aid of an outsourced payroll provider. There are cases in which businesses are entitled to employer-based exemptions for payroll tax. These instances are uncommon and can only be extended by the relevant Revenue Office/s.
What is considered as ‘wages’?
To adequately understand payroll tax, an employer must first identify what is legally classified as a wage. Broadly speaking, any remuneration made to employees and “deemed” employees is included as wages. This would include, but not limited to the following:
* Wages, salaries, commissions, bonuses, allowances
* Directors fees
* Fringe benefits
* Payments in kind
* Eligible termination payments
* Superannuation contributions
Payments made to employment agencies for labour hire services, payments for service contracts, and to other third parties may be deemed to be wages assessable for payroll tax. To get a clearer understanding as what may be deemed as wages, refer to the relevant State or Territory SRO website for further clarification.
When is payroll tax payable?
Upon registering for tax with the SRO, employers are obligated to pay tax by the 7th day of the month, following the month in which their wages exceeded the deduction threshold level. If an employer is liable to pay payroll tax and fails to register with the SRO, penalty tax and interest may be payable on unpaid taxes.
Consequences of not paying payroll tax
Penalties are imposed on employers who fail to register for payroll tax or do so inaccurately. The gravity of these penalties vary to the size of the business and nature of the discretion. Reduced penalties are issued to businesses who declare their liabilities voluntarily.
Employers can opt to complete payroll taxes on their own, although keeping track of elicited payments and withholding the right amount of money can be a challenge for a small or independant payroll officer. Fielding the services of an outsourced payroll provider will remove the risk of tax non-compliance which poses significant consequences for an employer.