employers’ responsibility for tax and superannuation
Australian employers have a statutory responsibility to calculate the tax owed on all employee income and benefits, the payroll tax applicable to the relevant state or territory, and employee superannuation contributions. These amounts are then deducted at source, and then paid to the Australian Taxation Office (ATO).
As an employer, there are different types of tax relating to employees that need to be paid:
Pay As You Go (PAYG) withholding is a legal requirement to withhold amounts for income tax purposes. The amount of tax withheld depends on the how much the employee earns and their declared status on their Tax File Number (TFN) declaration. Employees who do not provide a TFN are automatically deducted tax at the higher rate. All PAYG instalments are generally paid to the ATO on a quarterly basis.
Payroll tax is a state tax on the wages paid by employers. This is calculated on the amount of wages paid per month. Payroll tax is applicable if the total Australian wages exceeds the exemption threshold that applies in the relevant state or territory. Visit the Payroll Tax Australia website for information about registering with your state or territory tax office. There are also various employer-based exemptions for payroll tax so check with your tax office to find out if your business qualifies for an exemption.
Fringe benefits are an important part of business and can be useful in attracting quality employees. Fringe Tax Benefits (FTB) are payable by an employer for benefits paid to an employee in place of a salary or wage, for example a car. Employers should always seek expert advice, and for a comprehensive FBT overview, visit the ‘Fringe benefits tax’ page on the ATO website. See also ‘fringe benefits tax’ and ‘taxing the benefits of vehicles‘, lists which ones are taxed and what is exempted. Both are in chapter 15.
Superannuation is separate to salaries and wages. Employers must pay contributions into a super fund nominated by the employee, or selected by the employer, and is calculated on a percentage of the employee’s annual salary or wage. There have been changes to the super system that came into effect on 1 July 2017, and these changes can be reviewed on the ‘Super changes’ page of the ATO website. Chapter 16 provides guidance to employers on their duties in respect of employees’ superannuation.
The ATO website provides a Tax Withheld Calculator (TWC) – see Tax tables on ATO website – to help work out how much tax to withhold from payments to employees and other workers. In order to calculate these amounts correctly, employers require the employee’s TFN, as well as the withholding declaration and Medicare levy variation declaration. The TWC can also calculate amounts of Higher Education Loan Program (HELP) and Student Financial Supplement Scheme (SFSS) repayments.
taking on staff for the first time
Employers who are taking on staff in Australia for the first time should contact the ATO business tax self-helpline on 13 72 26 or visit the ATO checklist.
The ATO website has a dedicated section ‘Supporting your small business’ to help small businesses understand their tax and super obligations when taking on employees for the first time.
more articles about: pay and reward
- termination schemes
- employee share schemes (ESS)
- employed or self-employed?
- minimum wage
- salary sacrifice
- living-away-from-home allowances (LAFHA)
- working outside Australia
- key dates for your tax diary
- workers compensation insurance premiums
- trends and predictions for pay and reward
- principles of rewarding employees
- different generations – different motivations
- fringe benefits tax
- taxing the benefits of vehicles
- employers’ responsibility for tax and superannuation
- establishing the right reward system
- overtime, penalty rates and loadings
- pay: not the only reward