There aren’t many people who like the taxman, and employers are no different. When running a business, it can feel like you’re made to pay one tax after the next with little room to enjoy the profit your business makes. One of these taxes is the often-overlooked Payroll Tax.
Here we will discuss what the Payroll Tax means for you and your employees, and the exemptions that many employers aren’t aware they may be eligible for.
The Payroll Tax
Payroll Tax is a tax paid to the state government based on the wages an employer pays to their employees. This tax only has to be paid if the total amount of wages (including PAYG tax deductions and fringe benefits) are greater than the threshold amount. The threshold changes depending on what state you’re in, so there’s an interactive map which will tell you what threshold applies at your location. For example, in New South Wales, the threshold is $750,000. If you run a business in NSW, and you pay $750,000 or more in wages each year, then the rate you will have to pay is 5.45%. In Victoria, the threshold is $650,000 with a lower tax rate of 4.85% or 2.425% for regional employers.
Exemptions normally expire after three years, so it’s important to keep up to date with the rules and notify the ATO of any changes.
Exemptions
1. Non-profit organisations
Most not-for-profit organisations can claim an exemption to the Payroll Tax. These include a religious institution, a public benevolent institution, and a non-profit organisation. However, this requirement isn’t as simple as it seems. In terms of educational providers, only some are exempt. Under these rules, a tertiary education provider (university) is not exempt from paying the Payroll Tax, but schools from the secondary level and below are exempt.
If your business operates as a not-for-profit organisation, chances are you’ll be exempt from paying the tax, but always check to make sure.
2. Some public employers
Similar to primary and secondary schools, a large number of public employers are exempt from paying the tax, such as public hospitals and ambulance services. This is due to the fact that the wages that are paid are state-funded (by taxpayers), so any money paid in tax would likely end up in the same place.
3. Some types of leave
Most kinds of leave require for the payroll tax to still be paid, such as annual, sick and long service leave. However, maternity, paternity and adoption leave are exempt from being included in the Payroll Tax. This exemption is applicable to 14 weeks of paid (or reduced pay) leave. However, to claim this exemption, a medical certificate or statutory declaration has to be provided. If you’re unsure, a business lawyer will advise you what obligations you have.
Payroll tax may be seen by some as a ‘punishment’ for having more employees or paying your employees higher wages. However, it’s important to remember that taxes on employers are not a one-size-fits all outfit, but rather that depending on your circumstances, you may not have to pay it at all.
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