Do I Need an ABN When Paying Employees?

High Performance Workplace

Employees are an important part of expanding and running your business. You need to meet legal obligations around paying employees otherwise there additional costs and disciplinary action can be taken against your business.

To employ someone you don’t need an Australian Business Number (ABN). Businesses structured as a company or partnership will already have an ABN. Its not always a requirement for Sole Traders to have an ABN but it does have some advantages you can read about here.

So in order to employ someone there are 2 things you need to organise which having an ABN is essential or can make easier. They both revolve around paying employees.

Payroll Tax

Firstly, payroll tax obligations accrue when paying employees in your business or group of businesses. you may be obligated to make payroll tax payments when paying employees in your business. Payroll tax is paid by businesses to state governments on the amount of money paid to its employees. You need to self assess the wages you pay no matter where your business operates in Australia to ensure your information is correct and any obligations are paid. You need to cite an ABN when registering for payroll tax in any state. The threshold for required payroll tax registration is different in each state. To register for payroll tax in any state of Australia you will need an ABN. In the 2020-2021 financial year they are:

NSW

If you are an employer who pays wages you must register for payroll tax when in any month your total Australian wages are above the relevant monthly threshold. You need to register for payroll tax within seven days, after the month your total Australian wages go above the threshold. Find out more information at Revenue NSW.

  • 4.85%
  • 28 days in the month $92,055
  • 30 days in the month $98,630
  • 31 days in the month $101,918
  • Annually $1,200,000

QLD

You must register within 7 days after the end of the month in which wages exceed $25,000 a week, even if you think that you will pay less than $1.3 million in Australian taxable wages in the year. Find out more information at Business Queensland.

  • 4.75% for $6.5 million or less in Australian taxable wages.
  • 4.95% for more than $6.5 million in Australian taxable wages.

VIC

You need to pay by the 7th day of the following month your business exceeded the threshold. Find out more information at the State Revenue Office. The threshold is:

  • 4.85%
  • Monthly $54,166.
  • Annually $650,000.

ACT

You must register within seven days after the end of the month you go over the threshold amount. Find out more information at the ACT Revenue Office.

  • 6.85%
  • $166,666.66 per month
  • $2,000,000 per year 

WA

Payroll tax is calculated on a tiered rate scale that gradually increases the tax rate from 5.5% to a maximum of 6.5% for employers with annual taxable wages in Australia of more than $1 million.

Monthly returns are due and payable by the 7th of the following month in which the taxable wages were paid or payable. You can find more information can be found at the Department of Finance.

SA

Revenue SA recommends registration when an employer’s taxable wages consistently exceeds $125,000 in any month from 1 January 2019. Find out more information at Revenue SA.

  • Variable from 0% to 4.95% up to 1,700,000.
  • 4.95% over $1,700,000.

NT

You must pay payroll tax within 21 days of the end of the month in which your total Australian wages reaches the threshold amount. Find out more information at NT.GOV.AU.

  • 5.5%
  • $125,000 per month  

TAS

You must lodge a return by the 7th of the month following once you reach the threshold. You can find out more at the State Revenue Office of Tasmania.

  • 4% increasing to 6.1%. 
  • $1.25 million per annum (or $24 038 per week during any month)

What Else Do I Need to Know?

As an employer anywhere in Australia, you must pay payroll tax on employee wages if, during any one month, your total Australian wages exceed the weekly threshold. In each state your total Australian taxable wages are used to determine whether you are liable for payroll tax in that state. The state in which each employee is based for their work is the state which payroll tax is payable to. There are also different payment schedules for each state. If you fail to meet payroll tax requirements you may have a penalty tax imposed instead or be audited if you do not meet payroll tax requirements.

So depending on your state, the wages you pay and if you are only employing one or two people you may not need to get and ABN and register for payroll tax. However, if you pay a bonus and go over the threshold you will need to register and make payroll tax payments for that year. There are other obligations that come with paying employees which you can read about here.

PAYG Withholding

When paying employees it is a requirement that you withhold the tax eligible on their wages and forward it to a Pay As You Go (PAYG) Withholding account with the Australian Taxation Office (ATO). You will need to register for PAYG before you have to make the first payment that falls under the scheme. This applies even if nothing is withheld from the payment. PAYG needs to be cancelled when your business ceases to be an employer.

Registering for PAYG

In order to register for PAYG Withholding, you don’t need to have an ABN. However there is a difference in how you can go about registering for PAYG Withholding when you do not have one. If your business does not have an ABN you can register or cancel your PAYG business withholding account through the following means:

  • A registered tax or BAS agent
  • Phoning the business line – 13 28 66
  • The authorised contact can call the ATO business line.
  • The following forms can be used.
    • Add a new business account (NAT 2954) form
    • Application to cancel registration (NAT 2955) form.

If your business does have an ABN you can utilise the above methods and register or cancel:

  • Through Standard Business Reporting compatible software.
  • Through the Australian Taxation Office Business Portal.
  • The following forms can be used.
    • Complete an application to register a PAYG withholding account (NAT 3377)
    • Application to cancel registration (NAT 2955) form.

Employee or contractor?

Sometimes it makes sense to hire a contractor to complete work for your business. A contractor differs from an employee in that they carry on their own business separately to yours. A contractor should be:

  • Hired for some specific work or a predetermined amount of time.
  • Have a large degree of control over how the work they are paid to do is completed.
  • Can hire other people to assist them.
  • Pay their own tax, super and GST.
  • Can refuse work you offer or offer an alternative time when the work would be done. 
  • Agree to the hours required to do the job.
  • Have their own ABN and submit invoices to you for their work.

Contractors can save on administration and tax costs for your business. However, remember its important that you hire a contractor, not require the person you interview to get an ABN so you can pay them as a contractor. This is referred to as sham contracting and is a way of avoiding paying normal entitlements owed to employees like superannuation, sick leave and holiday pay. If you are found to be engaging in sham contracting, at best you will be required to go through the process of hiring that person as an employee. At worst civil penalties are up to $66,600 for corporations and $13,320 for individuals per contravention.

Finally

As we can see there are a few hoops to jump through and for the purposes of getting tax and other obligations right for your business and employees. Hiring a lawyer in the marketplace can save a lot of stress and expense down the track. If you need to register for an ABN we have an online tool to take you through the process.

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