Pay as you go withholding - what you need to know
Pay as you go withholding - what you need to know
How to obtain copies of this publication
This publication can be downloaded in Portable Document Format (PDF).
Download Pay as you go withholding - what you need to know (NAT 5195) (PDF, 656KB).
To order a printed copy:
As an employer, you have certain tax and super obligations you need to be aware of for both employees and contractors.
These obligations include:
- pay as you go (PAYG) withholding
- super
- fringe benefits tax (FBT).
When you make payments to employees and some contractors, you may need to withhold an amount and send it to us at regular intervals. We call this process PAYG withholding.
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To make it easier for you to meet your PAYG withholding obligations we offer a range of products and services. Refer to More information.
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To comply with your PAYG withholding obligations you need to:
Under the PAYG withholding system:
- the business, non-profit organisation or individual making the payments is called the payer
- the individual being paid is called the payee.
Register for PAYG withholding
You need to register for PAYG withholding as soon as you know you need to withhold. If you have an Australian business number (ABN), you can register:
- online at Online Services, through the Business Portal (you will need an AUSkey)
- by phoning 13 28 66 between 8.00am and 6.00pm, Monday to Friday
- by completing an Add a new business account (NAT 2954) form
- through your registered tax or BAS agent.
If you don't already have an ABN, you can register for PAYG withholding at www.abr.gov.au at the same time as you apply for an ABN, using the same form.
Work out the status of your workers
You have different obligations depending on whether your payee is either an:
- employee
- independent contractor.
The status of your worker depends on your working relationship and is usually worked out by the contractual arrangements made between the two of you.
Know the payments you need to withhold from
The most common types of payments you need to withhold amounts from include:
- payments to employees, company directors and office holders
- payments to independent contractors who have a voluntary agreement with you
- payments to individuals under labour hire arrangements
- employment termination payments - when an employee leaves
- when a business doesn't quote an ABN
- allowances.
Work out the amount to withhold
We produce tax tables to help you work out how much to withhold from your payments to your payees.
These PAYG withholding tax tables are available for weekly, fortnightly and monthly pay periods. You can also get tax tables for particular types of payments, such as payments made under voluntary agreement.
For a full list of tax tables, refer to Tax tables.
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We have a range of online calculators to assist you with your business. To use these calculators, visit www.ato.gov.au/business and select 'Find a rate or calculator' then 'List all tools and calculators'.
Two commonly used calculators are:
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To work out how much to withhold, use information your payee gives you on their Tax file number declaration (NAT 3092) and, if applicable, Withholding declaration (NAT 3093). For example, they may be claiming the tax-free threshold on their Tax file number declaration, or they may be entitled to a dependent spouse tax offset which is claimed using the Withholding declaration.
If your payee is under a voluntary agreement, use the information provided in the agreement to work out the amount to withhold.
Report and pay the withheld amounts
How often you report and pay amounts depends on whether you are a small, medium or large withholder.
We will tell you what type of withholder you are after you register.
You are a:
- small withholder if you withhold $25,000 or less a year
- medium withholder if you withhold $25,000 to $1 million a year
- large withholder if you withheld amounts totalling more than $1 million in a previous year or are part of a company group that has withheld more than $1 million in a previous financial year.
Annual obligations
At the end of the financial year, in order to meet your PAYG withholding annual reporting obligations you must:
- provide payment summaries to all your employees and other payees that show how much you paid them and tax withheld by no later than 14 July
- send us your payment summary annual report that summarises all payments to your employees and other payees and total amounts withheld as early as possible but no later than 14 August.
There are different payment summaries depending on the type of payment. Examples include payment summaries for:
- individual non-business payments
- employment termination payments
- business and personal services income
- payments where an ABN is not quoted.
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It is important you use the appropriate payment summary.
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A full list of payment summaries is available on our website.
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To order payment summaries:
- refer to online ordering
- phone our automated self-help ordering service on 13 72 26 and press 4. You'll need your ABN and the names of the publications you want to order.
We also provide instructions and guides for completing these payment summaries:
- you can download these publications in Portable Document Format (PDF)
- phone our Publications Distribution Service on 1300 720 092. You can speak to an operator between 8.00am and 6.00pm, Monday to Friday. Before you phone, check whether there are other publications you may need - this will save you time and help us. For each publication you order, you need the full title
- visit one of our shopfronts between 8.30am and 4.45pm weekdays (except public holidays).
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It is important that you provide payment summaries to all your employees, even if you were not required to withhold.
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There are two options you can use to provide us with your payment summary annual report. You can either use a electronic file or complete paper forms.
Lodging electronically
If you have payroll software that meets our specifications, you can submit your payment summary annual report electronically using the Business Portal.
If you lodge your payment summary annual report electronically, you can use your software to print the individual payment summaries ('self print payment summaries'). These are then provided to your payees but should not be sent to us as part of your payment summary annual report.
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We have a range of electronic online services to suit your business. For more information, refer to Online Services.
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Standard Business Reporting (SBR)
Some payroll software enables direct lodgment from your payroll package using SBR.
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To see how SBR can simplify your reporting obligations, visit the SBR website at www.sbr.gov.au
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Lodging paper
If you lodge your payment summary annual report to us using paper forms, we send you blank payment summary forms and a personalised PAYG payment summary statement to complete. You must use ATO printed forms when lodging your payment summary annual report by paper. We are unable to process 'self-print' payment summaries.
What you need to provide us for a complete paper payment summary annual report is the following:
- a completed personalised PAYG payment summary statement (NAT 7885)
- the originals of all the ATO printed payment summaries you issued for the financial year.
If you misplace your personalised payment summary statement or it contains an error, you can complete a generic PAYG payment summary statement (NAT 3447).
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Make sure you keep a copy for your records. You must keep your business records for at least five years.
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From 1 July 2012, if you are a business in the building and construction industry, you need to report to us the total payments you make to each contractor for building and construction services each year. These payments are reported to us on the Taxable payments annual report (NAT 74109).
The Taxable payments annual report is due 21 July each year.
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For more information about taxable payments reporting in the building and construction industry, refer to Taxable payments reporting.
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You can make it easier for your employees to lodge their tax returns. Simply lodge your payment summary annual report early and electronically. As soon as we have processed your annual report, we will make the payment summary information available:
- pre-filled into the correct labels in e-tax - the free service offered by us that allows individuals to complete and lodge their income tax returns
- in reports for tax agents to help them complete their client's tax returns.
If you're an employer, you need to understand your super guarantee obligations and how to meet them. Under super law, you need to pay super for your employees, in addition to their salary or wages.
Generally, you have to pay super for your employees who:
- are aged between 18 and 69
- are paid $450 (before tax) or more in a calendar month
- work full-time, part-time or on a casual basis.
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On 1 July 2013, the super guarantee upper age limit will be removed. This means you will be required to make super contributions for eligible employees who are 70 years or older.
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Currently the minimum super amount you have to pay is 9% of each eligible employee's earnings base.
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On 1 July 2013, the super guarantee rate will increase to 9.25%. It will then gradually increase each year until it reaches 12% on 1 July 2019.
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If you're self-employed, you don't have to make super contributions to a super fund for yourself. However, you may wish to consider super as a way of saving for your retirement.
If you pay a contractor under a contract that is wholly or principally for labour, you have to make super contributions for them, even if they quote an ABN.
Currently you need to pay a minimum of 9% of each employee's earnings base at least once every quarter, by the cut-off date (28 October, 28 January, 28 April and 28 July).
You can choose to pay more often if it suits you, for example, on a monthly basis.
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On 1 July 2013, the super guarantee rate increases to 9.25%.
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Generally, super contributions made by the cut-off dates are tax deductible in the financial year you pay them.
You need to pay contributions into a complying super fund or retirement savings accounts. In most instances your employees can choose the fund they want you to pay their super contributions into. Once an employee chooses a super fund, you have two months to arrange to pay contributions into that fund.
A free superannuation clearing house service is available to small businesses with 19 or fewer employees.
The Small Business Superannuation Clearing House lets employers pay their super contributions to a single location in one secure electronic transaction.
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For more information on the Small Business Superannuation Clearing House, visit www.humanservices.gov.au/smallbusinesssuper or phone 1300 660 048.
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If you don't meet your obligations, you'll incur a charge called the super guarantee charge. You need to lodge a super guarantee charge statement and pay this charge to us. You'll have to do this if you don't pay super contributions:
- of at least the minimum super guarantee rate for your eligible employees
- by the cut-off date for payment
- into your employees chosen super funds.
You can't claim a tax deduction for the super guarantee charge.
If you provide additional superannuation contributions to your employees under a salary sacrifice arrangement, you need to report these amounts separately on their payment summary as a reportable employer superannuation contribution.
When your employee completes a Tax file number declaration (NAT 3092), you need to pass their tax file number onto their super fund.
There are four online tools and calculators to help you work out and meet your super obligations:
FBT is a tax paid on certain benefits employers provide to their employees or their employees' associates (typically family members). Benefits can be provided by you, your associate or by a third party under an arrangement with you. FBT is separate from income tax and is based on the taxable value of the various fringe benefits provided.
The FBT year runs from 1 April to 31 March.
Basically, a fringe benefit is a benefit provided to an employee in respect of employment. This effectively means a benefit provided to an employee (or their associate) because that person is an employee. An employee can be a current, future or former employee.
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If you are a director and conduct your business through a company or a trust, you may be an employee of the company or trust. This may mean you are providing fringe benefits to yourself.
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The term 'benefit' is broadly defined and includes any rights, privileges, or services. If you answer 'YES' to any of the following questions, you may need to pay FBT.
- Do your employees take cars home and garage them overnight, even if only for security reasons?
- Do you make a car or other vehicles owned or leased by the business available to employees for private use?
- Do you provide loans at reduced interest rates to employees?
- Have you released any employees from a debt they owed?
- Have you paid for, or reimbursed, an expense incurred by an employee?
- Do you provide a house or unit of accommodation to our employees?
- Do you provide employees with living away from home allowances?
- Do you provide entertainment by way of food, drink or recreation to your employees?
- Do any of your employees have a salary packaging arrangement in place?
- Have you provided your employees with goods at a lower price than they are normally sold to the public?
Payroll tax is a state tax calculated on wages paid, or payable, by employers and applies in all Australian states and territories.
For payroll tax purposes wages include:
- salaries
- allowances
- director's fees
- super
- 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.
We exchange wage-related and other information with the state and territory revenue offices help in the proper identification and accurate assessment of tax liabilities.
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For more information about payroll tax or to find out if you are liable to pay any payroll tax, contact the revenue office in your state or territory:
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More information
Online services
To access helpful online products and services refer to:
Phone
To speak to a tax officer, you can phone us between 8.00am and 6.00pm, Monday to Friday on:
- 13 28 66 (PAYG withholding, FBT and general enquiries)
- 13 10 20 (super enquiries)
- 1300 130 248 (if you are a non-profit organisation).
Free tax support
For information about our free and helpful tax support (including seminars and workshops and onsite visits):
Mail
You can also write to:
PAYG withholding
Super
FBT
Fringe benefits tax - what you need to know (NAT 1744)
Last Modified: Wednesday, 21 November 2012
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