This is available to download in Portable Document Format (PDF) format: PAYG withholding (NAT 8075, 462KB).
This guide will help you meet your pay as you go (PAYG) withholding obligations if you:
- are an employer
- operate a business that has other workers, such as contract workers, or
- make payments to other businesses that do not quote their Australian business number (ABN).
This guide does not cover withholding from:
- interest, dividends or royalty payments you make to a non-resident
- payments you make to foreign residents for
- entertainment or sports activities
- construction and related activities
- arranging casino gaming junkets
- interest, dividends or unit trust distributions you pay to an investor (including a non-resident) that did not provide or was deemed not to have quoted a tax file number (TFN)
- payments that trustees of closely held trusts make to beneficiaries, or
- departing Australia superannuation payments.
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If you need more information about withholding from these types of payments, refer to:
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Terms we use
When we say:
- contractor, we mean those workers who are self-employed and have a contract with you to provide services on their own account
- employee, we mean those workers you employ in your business. You generally have to withhold an amount from any payments you make to them
- labour hire worker, we mean those workers supplied by a labour hire firm
- payee, we mean an individual or business who receives payments
- payer, we mean an individual or business who makes payments to a payee.
Some technical terms in this guide may be new to you. These are shown in bold when first used, and are explained in the list of definitions.
Pay as you go (PAYG) withholding
If you have employees or pay employees of another business, you must withhold an amount from payments you make to them. If you operate your business as a company, you also need to withhold amounts from payments to company directors, for their services, this also includes payments to other workers such as contractors.
You must also withhold an amount from payments you make to other businesses if they don't quote their ABN to you on an invoice or other document if required.
You report and send all amounts you have withheld under PAYG withholding - this is called 'withholding'.
Under PAYG withholding:
- the individual or business making the payment is called the 'payer' and the individual or business receiving the payment is called the 'payee'.
- if you are an employer or you operate a business and you make payments subject to withholding you must:
- register for PAYG withholding
- work out the status of your workers (if applicable)
- become familiar with the types of payments you need to withhold from
- work out the amount to withhold
- report and pay withheld amounts to us
- provide payment summaries and lodge an annual report after the end of each income year.
Other employer obligations
Super guarantee
Under super law, you must pay super contributions to the correct super fund by the cut-off dates for all your eligible employees. You may also have to offer a choice of super fund to your eligible employees including individual contractors.
You must pass on your employees' tax file numbers (TFN), provided in their Tax file number declaration (NAT 3092), to their super funds.
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If you need more information about your superannuation obligations:
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Fringe benefits
If you provide a fringe benefit to an employee or their associate, such as their family member, you may be liable for fringe benefits tax (FBT). Basically, a fringe benefit is a benefit provided to an employee (or their associate). Benefits include rights, privileges or services. For example, you provide a fringe benefit when you allow an employee to use a work car for private purposes or pay an employee's private health insurance costs.
Payroll tax
All Australian States and Territories have a payroll tax, which is calculated on wages paid or payable by employers. For payroll tax purposes wages includes salaries, allowances, director's fees, superannuation and the 'grossed-up' value of fringe benefits.
Employers are required to self-assess their liability on a monthly basis, with an annual adjustment reconciliation performed at the end of the financial year.
To see if you are liable for payroll tax you should check your local Revenue Office website to see if you need to register.
The Australian Taxation Office (ATO) and the State and Territory Revenue Offices exchange wage-related and other information to assist in the proper identification and accurate assessment of taxation liabilities.
For more information about payroll tax contact the Revenue Office where you employ:
PAYG withholding - what you need to do
If you have employees or other workers, or you make payments to other businesses that don't quote their ABN to you, you must:
- Register for PAYG withholding
- Work out the status of your workers (if applicable)
- Work out which payments to withhold from
- Work out the amount to withhold
- Report and pay withheld amounts
- Provide payment summaries and lodge an annual report
- Keep proper records
Last Modified: Thursday, 1 December 2011