Tiffany Thompson · 10/21/2026
It's a pleasure to hire your first few employees. But when your team expands, your wages go up, and then someone brings up a tax you've never come across before. When does payroll tax become an issue when growing your team in Australia? That's a reasonable question, and it's likely right up there with "Did I leave the oven on?" as one of your concerns. The good news is that payroll tax is simpler to understand than it sounds, and the majority of small businesses never have to pay it at all.
The payroll tax threshold is the amount of wages you can pay each year before payroll tax begins to apply. No tax is generally payable below the relevant threshold, but once you exceed it, the tax calculation depends on the state or territory where your business operates. In Australia, thresholds vary and can range from around $900,000 to $2 million per year. Rates also differ, typically falling between 4.85% and 6.85%. These figures can change over time, so check your state's official website for the latest information before making any decisions. Here's a rough rule of thumb: if you have fewer than 10 employees earning average wages, you may be below the threshold. But since "may be" isn't a definite plan, you should do the calculations anyway.
This is where people tend to make mistakes. Taxable wages are not merely the amounts that appear in your employees' bank accounts. They often include:
It is common for businesses that are expanding to hire contractors to maintain flexibility. That may well be a reasonable approach, but caution is advised. In some cases, payments made to contractors can be considered wages for payroll tax purposes, even if the contractor has their own ABN (Australian Business Number). Certain contractor payments may be exempt, for instance, where a person works for multiple clients and is genuinely running their own independent business. The rules are detailed, and each state applies them somewhat differently. When you engage a large number of contractors, it's advisable to check each arrangement rather than simply assume you're compliant.
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When your team is based in multiple states, the situation becomes more complicated. Wages are generally allocated to the state or territory determined by the applicable rules, and your payroll tax threshold may be affected by wages paid across other Australian jurisdictions. You'll typically need to consider registration and payroll tax obligations in every relevant state or territory. Remote work introduces additional considerations, as an employee's work location and other circumstances may affect where their wages are taxable.
You generally need to register for payroll tax when your wages exceed the relevant threshold or when you expect them to exceed it, depending on your state's requirements. Registration deadlines vary, so check the rules that apply to your business rather than relying on a general timeframe. Registration is usually available online through your state or territory revenue office. You may then need to:
There is no need to fear payroll tax, but it is important to plan for it. The key is to understand your figures early: check your state's threshold, accurately calculate your taxable wages, and make sure you register and file returns on time. A little planning at this stage can help you avoid unexpected costs and make expanding your team in Australia a much smoother experience.