Taxation & your employees
Ensuring that your tax and superannuation obligations are being met may not be the most glamorous task for business owners, but as it is a common cause of business failure, it is essential that you comply.
To ensure the needs of your workers are being met, consider the following:
Determine the status of workers
The status of your workers for tax purposes is important, as employees and contract workers involve different obligations.
An employee is a worker you employ in your business - you generally have to withhold tax from payments you make to them.
A contract worker is a worker who is self-employed and has a contract with you to provide services. You don't have to withhold tax from payments to them, unless you enter into a voluntary agreement with them. Visit our Independent contractors topic.
Pay As You Go (PAYG) withholding
Pay As You Go (PAYG) withholding is a legal requirement to withhold amounts for income tax purposes.
If you have employees, you're required to withhold tax from payments you make to them. You may have to withhold tax from payments to other workers, such as contract workers. As a new employer, you must register with the Australian Taxation Office (ATO) before you withhold from payments to your employees.
You may also need to withhold an amount from payments to other businesses if they don't quote their ABN to you on an invoice or other document if required. You must send all withheld amounts to the ATO.
Payroll tax is a state tax on the wages paid by employers. It is calculated on the amount of wages you pay per month. You must pay payroll tax if your total Australian wages exceed the exemption threshold that applies in your state or territory - exemption thresholds vary between states.
You must register for payroll tax in your state or territory. Check with the Revenue Office in your state or territory for the payroll tax rate and threshold that applies to you.
- ACT Revenue Office
- NSW Office of State Revenue
- Northern Territory Revenue
- Qld Office of State Revenue
- Revenue SA
- TAS State Revenue Office
- VIC State Revenue Office
- WA Office of State Revenue
Fringe Tax Benefits for employees
Fringe benefits are an important part of business and can be a useful way of attracting quality staff. When providing fringe benefits, you need to be aware of taxation obligations.
FBT is a tax payable by employers for benefits paid to an employee, or an employee's associate, in place of salary or wages. For example, an employee may receive fringe benefits in the form of:
- a car
- car parking
- low interest loans
- payment of private expenses.
If you provide fringe benefits to your employees, the Australian Taxation Office (ATO) recommends that you register for FBT.
What to do...
- Visit the Inspector-General of Taxation’s Making a complaint page to learn how to make a complaint about tax decisions.
Visit the ATO website to:
- find out more about PAYG withholding essentials
- read No ABN withholding for information on withholding tax from contractors who do not have an ABN
- refer to the Tax Tables or use the Tax Withheld Calculatorto calculate the amount you need to withhold from your employees and other workers.
- Use the Employer obligations checklist to find out what you need to do when a new worker starts, during employment or when a worker leaves.
- Read about voluntary agreementswith contract workers
To register for PAYG withholding: