What is the current payroll tax threshold in New South Wales?

For the 2024-25 financial year, the payroll tax threshold in New South Wales is $1.2 million in annual taxable wages. This means businesses with total taxable wages below this amount are generally exempt from NSW payroll tax, as stated by Revenue NSW.

What is the difference between PAYG withholding and payroll tax in Australia?

Skill level: General guidance
Time: Varies
Trade: Bookkeeping & Cashflow
Updated: 4 November 2026

What is the difference between PAYG withholding and payroll tax in Australia?

PAYG withholding and payroll tax are two very different obligations, but they’re often confused because both sit around wages and hiring. For Australian small business owners, sole traders and contractors taking on staff, understanding the difference matters because one is a regular federal withholding obligation managed through payroll, while the other is a separate state or territory tax that may only apply once your wage bill reaches certain thresholds.

What are the key differences between PAYG withholding and payroll tax?

PAYG withholding is a federal tax withholding system, administered by the ATO. If you employ workers, you generally withhold amounts from their pay and report this through Single Touch Payroll (STP), then remit the withheld amounts to the ATO.

Payroll tax is a state or territory tax, not an ATO withholding. It is generally assessed on an employer’s total taxable wages once they exceed the relevant threshold in that state or territory, and the rules can differ depending on where your employees work.

PAYG withholding can apply from your first employee, while payroll tax usually only becomes relevant once your total wages grow past a state-based threshold. That’s why a business can have PAYG withholding obligations for years before payroll tax becomes an issue.

They are reported and paid differently. PAYG withholding is usually handled through your payroll software, STP reporting and ATO activity statements. Payroll tax is generally registered, calculated and lodged with the relevant state or territory revenue office.

Worker classification matters for both. Whether someone is an employee or contractor can affect PAYG withholding, super obligations, leave entitlements and potentially payroll tax treatment. The ATO and Fair Work Ombudsman both have guidance here, but getting the setup right often needs a closer review.

What does a payroll specialist review for PAYG and payroll tax compliance?

Whether your workers are genuinely employees, contractors, or a mix, and how that affects PAYG withholding, superannuation guarantee and STP reporting.

Which state or territory payroll tax rules may apply based on where your staff perform work, where your business is grouped, and whether wages need to be aggregated across related entities.

Whether your payroll system is coded correctly for wages, allowances, reimbursements, director payments and termination payments so reporting is accurate at both ATO and state level.

Your current wage bill and growth plans, so you can see whether payroll tax registration may be approaching rather than waiting until after a threshold is crossed.

Whether your business records, onboarding forms and payroll processes are strong enough to support BAS, STP and payroll compliance, with input from a registered BAS agent or bookkeeper where needed.

Common Costly Mistakes

Assuming PAYG withholding and payroll tax are the same thing and only checking one obligation.

Treating all contractors as outside payroll without reviewing ATO, Fair Work or state payroll tax rules.

Waiting until headcount grows before checking payroll tax exposure, then finding registration should have happened earlier.

Relying on software defaults without confirming the payroll setup matches your actual employment arrangements.

When To Get Professional Help

DIY often stops making sense when you’re hiring your first employee, engaging regular contractors, operating across more than one state, or seeing wages grow quickly. If you’re unsure whether your payroll is set up correctly for STP, super and withholding — or whether payroll tax may be on the horizon — it’s sensible to have a bookkeeping specialist or registered BAS agent review it before errors build up.

Talk To A Specialist

If you want clarity on what applies to your business now and what may apply as you grow, a bookkeeping health check can help identify gaps without overcomplicating things. If that would be useful, you can enquire here: /finance/enquire?service=bookkeeping

Frequently Asked Questions

Is PAYG withholding the same as payroll tax?

No. PAYG withholding is money you withhold from payments such as employee wages and send to the ATO as part of your federal tax obligations. Payroll tax is a separate tax administered by each state or territory, usually only applying once an employer’s wages exceed the relevant threshold.

Do sole traders need to worry about PAYG withholding or payroll tax?

A sole trader with no employees may not have PAYG withholding obligations for wages, but that can change if they hire staff or make certain other payments that require withholding. Payroll tax is usually only relevant if the business has taxable wages above a state or territory threshold, but it’s still worth monitoring if the business is growing.

If I only hire contractors, do I avoid PAYG withholding and payroll tax?

Not necessarily. Some contractor arrangements may still create obligations depending on how the worker is engaged and the applicable ATO, Fair Work and state payroll tax rules. This is a common area of confusion, so it’s worth having the arrangement reviewed rather than assuming contractors sit completely outside payroll.

Is payroll tax reported through STP?

No, STP is used to report payroll information such as salaries, wages, PAYG withholding and super information to the ATO. Payroll tax is generally dealt with separately through the relevant state or territory revenue office.

Who can help me work out what applies to my business?

A qualified bookkeeper or registered BAS agent can often help review your payroll setup, reporting processes and whether you may need to investigate payroll tax further. For broader tax structuring or legal questions, you may also need an accountant, tax adviser or employment law specialist depending on the issue.

Important — General Information Only

This is general information only, not personal bookkeeping & cashflow advice. It does not take into account your objectives, financial situation or needs, and you should consider your own circumstances and seek advice from an appropriately licensed or registered professional before acting. For authoritative guidance, refer to the ATO for PAYG withholding, STP and superannuation guarantee, Fair Work Ombudsman for pay and entitlements, and the Tax Practitioners Board to check whether your adviser is a registered BAS agent.

Frequently asked questions

Is PAYG withholding the same as payroll tax?: No. PAYG withholding is money you withhold from payments such as employee wages and send to the ATO as part of your federal tax obligations. Payroll tax is a separate tax administered by each state or territory, usually only applying once an employer’s wages exceed the relevant threshold.
Do sole traders need to worry about PAYG withholding or payroll tax?: A sole trader with no employees may not have PAYG withholding obligations for wages, but that can change if they hire staff or make certain other payments that require withholding. Payroll tax is usually only relevant if the business has taxable wages above a state or territory threshold, but it’s still worth monitoring if the business is growing.
If I only hire contractors, do I avoid PAYG withholding and payroll tax?: Not necessarily. Some contractor arrangements may still create obligations depending on how the worker is engaged and the applicable ATO, Fair Work and state payroll tax rules. This is a common area of confusion, so it’s worth having the arrangement reviewed rather than assuming contractors sit completely outside payroll.
Is payroll tax reported through STP?: No, STP is used to report payroll information such as salaries, wages, PAYG withholding and super information to the ATO. Payroll tax is generally dealt with separately through the relevant state or territory revenue office.
Who can help me work out what applies to my business?: A qualified bookkeeper or registered BAS agent can often help review your payroll setup, reporting processes and whether you may need to investigate payroll tax further. For broader tax structuring or legal questions, you may also need an accountant, tax adviser or employment law specialist depending on the issue.
What is the current payroll tax threshold in New South Wales?: For the 2024-25 financial year, the payroll tax threshold in New South Wales is $1.2 million in annual taxable wages. This means businesses with total taxable wages below this amount are generally exempt from NSW payroll tax, as stated by Revenue NSW.

Written by Tally, the Bookkeeping & Cashflow specialist at Aus.Tools.