Payroll tax is a key statutory obligation for managing corporate finances in Australia. Despite its relevance, many companies continue to struggle with the intricacies of payroll tax in Australia, especially when dealing with varying thresholds, rates, and compliance rules across state lines. Because of these differences, even minor mistakes in your payroll system can lead to costly penalties.
Understanding how payroll tax in Australia works and ensuring your payroll system is up to date are essential to staying compliant and avoiding errors.
What is the Payroll Tax in Australia?
Payroll tax is a state or territory-based tax. It is calculated by adding all of your monthly wages. The tax is collected by the state or territory where your employees are located.
Payroll tax is not required for every company. You must pay when your total Australian income reaches the state or territory’s tax-free level. Payroll tax rates in Australia and the criteria vary between states and territories.
Understanding payroll tax is essential for businesses to ensure compliance, avoid penalties, and optimise financial operations, especially when leveraging solutions like Dynamics 365 HR & Payroll.
Understanding Payroll Tax in Australia
In Australia, each state and territory determines its own standards and rates. For example, the payroll tax threshold in New South Wales is $1.2 million per year, and the general rate is 5.45%.
Understanding these criteria and rates is critical for companies to effectively predict payroll tax liabilities and maintain compliance in several countries.
- Who Pays Payroll Tax in Australia? Employers who have total Australian earnings that exceed the tax-free threshold in a specific state or territory are responsible.
- How is payroll tax calculated in Australia? It is determined using the portion of salaries that surpass the threshold, with rates differing by jurisdiction.
What Counts as Wages?
When discussing payroll tax wages, we do not refer to ordinary salary. This includes:
- Regular salaries and pay
- Bonuses and commission
- Superannuation contributions
- Fringe perks
- Certain contractor payments
Types of Exempt Wages
Several forms of wages are exempt from payroll taxes. For example, wages provided to apprentices and trainees are usually exempt. Additionally, salaries earned for maternity, paternity, or adoption leave are normally exempt. However, specifics differ by state or territory, so always consult your local revenue office for the most up-to-date information on how to pay wages and which employers pay exempt wages.
Understanding the Current Payroll Tax Rates and Thresholds Across Australian States
For compliance, you must know about the state rates and payroll tax thresholds for 2025. Here’s a breakdown for the 2025 financial year:
New South Wales (NSW)
- Threshold: $1,200,000
- Rate: 5.45%
Victoria
- Threshold: $900,000
- Rate: 4.85% (1.2125% for regional employers)
Queensland
- Threshold: $1,300,000
- Rate:
- 4.75% for employers or groups with Australian taxable wages of $6.5 million or less
- 4.95% for employers or groups with Australian taxable wages above $6.5 million
South Australia
- Threshold: $1,500,000
- Rate: Variable up to 4.95%
Western Australia
- Threshold: $1,000,000
- Rate: 5.5%
Australian Capital Territory (ACT)
- Threshold: $2,000,000
- Rate: 6.85%
Challenges in Australian Payroll Tax Compliance
Given Australia’s complex industrial relations system, as well as the significant investment required in technology and resources to stay current, payroll has long been a problematic compliance issue for businesses.
However, underpayments and noncompliance can expose organisations to substantial financial penalties, reputational damage, a loss of employee confidence, and remediation efforts.
Some of the challenges that add to the fuel are:
- Complexity
- Audit Risks
- Resource Constraints
- Technological Limitations (outdated systems)
Leveraging Technology for Compliance
If you are still relying on the outdated system or have independent systems, you are probably in for a lot of trouble. The complicated state-by-state variances in tax rates and thresholds leave a huge margin for error, and noncompliance can result in heavy penalties.
In this situation, the best payroll software for businesses is essential, particularly for those that operate in many Australian states.
With the sophisticated Dynamics 365 HR & Payroll solution, Australian businesses can automate and streamline their whole payroll process while conforming to all local tax laws:
- Enhances operational efficiency by eliminating data duplication and seamlessly integrating payroll and HR activities.
- Human error is significantly reduced by automating complex payroll tax computations, including changing rates and thresholds across states.
- Provides finance and human resources departments with real-time information and dashboards, allowing them to make data-driven choices and handle payroll responsibilities proactively.
Dynamics 365 HR & Payroll by DHRP is the best payroll software for small businesses in Australia. Its user-friendly design and enterprise-grade capabilities make it suitable for growing SMEs and large organisations alike.
Although implementing such systems can be intimidating, payroll implementation specialists play an important role in this case. These specialists work closely with businesses to:
- Set up the payroll system in compliance with industry standards and legal regulations.
- Ensure that the data migration from legacy systems runs smoothly.
- Give internal teams ongoing support and training.
By selecting the best HR and payroll solutions in Australia and engaging with skilled professionals, businesses may stay compliant and fully use payroll as a strategic asset rather than just a back-office function.
Conclusion
Navigating payroll tax in Australia requires a clear understanding of state-specific thresholds, rates, and exemptions. Australian businesses need robust solutions that simplify complex payroll operations to stay compliant and avoid penalties.
That’s where the benefits of payroll software like Dynamics 365 HR & Payroll by DHRP come into play. This advanced system helps automate compliance, minimise errors, and deliver powerful insights for smarter decision-making.
Whether you’re a small business or a large enterprise, DHRP provides tailored support and expert implementation to turn payroll from a challenge into a strategic advantage.
