Your Responsibilities as an Australian Employer
When you hire staff in Australia, you take on a range of legal obligations under the PAYG withholding framework administered by the ATO. Failing to meet these obligations can result in penalties, interest charges, and reputational damage. This guide walks you through each key responsibility in plain language.
Step 1: Register for PAYG Withholding
Before you make your first payment to an employee, you must register for PAYG withholding with the ATO. You can do this:
- Online through the Australian Business Register (ABR) or the ATO's Business Portal
- Through your registered tax or BAS agent
- By calling the ATO's business line
Registration is typically done at the same time as applying for an ABN. If your business already has an ABN and you're taking on employees for the first time, you'll need to add PAYG withholding to your existing registration.
Step 2: Collect TFN Declarations from New Employees
When a new employee starts, ask them to complete a Tax File Number (TFN) declaration form. This tells you how much tax to withhold based on their residency status, tax offsets claimed, and whether they have a study and training support loan (STSL) debt. If an employee does not provide their TFN, you are legally required to withhold tax at the highest marginal rate.
Step 3: Calculate and Withhold the Correct Amount
The ATO publishes tax withholding tables and calculators that determine the correct amount to withhold from each payment. Key factors include:
- The employee's gross earnings for the pay period
- Their tax-free threshold claim status
- Any HELP, VSL, or STSL debts
- Whether the employee is an Australian resident or foreign resident for tax purposes
Always use the most current withholding schedules, as these are updated when tax rates change.
Step 4: Report via Single Touch Payroll (STP)
Since 1 July 2019 (and mandatory for all employers since 1 July 2021), employers must report payroll information to the ATO using Single Touch Payroll (STP). STP-enabled payroll software sends salary, tax, and super information directly to the ATO each time you run payroll. This replaces the old group certificate system and streamlines end-of-year reporting.
Step 5: Pay Withheld Amounts to the ATO
The frequency with which you must pay withheld amounts depends on how much you withhold annually:
| Withholder Type | Annual Withholding | Payment Frequency |
|---|---|---|
| Small withholder | Up to $25,000 | Quarterly |
| Medium withholder | $25,001 – $1 million | Monthly |
| Large withholder | More than $1 million | Up to twice weekly |
Step 6: Finalise STP Data at End of Financial Year
At the end of each financial year (30 June), you must finalise your STP data by submitting a finalisation declaration through your payroll software. Once finalised, employees can access their income statement through myGov and use it to lodge their tax returns. The deadline for most employers is 14 July each year.
Record-Keeping Requirements
You must keep PAYG withholding records for a minimum of five years. This includes payroll records, TFN declarations, and evidence of payments made to the ATO. Good record-keeping protects you in the event of an ATO audit.
Key Takeaways
- Register for PAYG withholding before making your first employee payment.
- Collect TFN declarations from all new employees.
- Use ATO withholding tables to calculate the correct deductions.
- Report payroll through STP-enabled software each pay cycle.
- Finalise STP data by 14 July after each financial year.
- Retain all records for at least five years.