How to Calculate Payroll Tax in Australia 2026

Published April 2026 • 11 min read • Last updated April 2026

Payroll tax is one of the most misunderstood taxes in Australia. Unlike income tax or GST, it is administered by each state and territory -- not the ATO -- which means thresholds, rates, and rules change dramatically depending on where your employees work. Get it wrong and you face penalties, interest, and potential audits from your state revenue office.

This guide explains exactly how payroll tax works in Australia in 2026, the current thresholds and rates for every state and territory, what counts as "wages" for payroll tax purposes, and how to use a free payroll tax calculator to get the numbers right every month.

What Is Payroll Tax?

Payroll tax is a state and territory tax on the wages paid by employers. Each state has its own revenue office that sets the threshold -- the amount you can pay in wages before payroll tax kicks in -- and its own tax rate. If your total Australian taxable wages exceed the threshold in any given state, you must register, lodge returns, and pay tax in that state.

The key distinction to understand is that payroll tax is not deducted from your employees' pay. It is a tax on you, the employer, calculated as a percentage of the total wages you pay. This is fundamentally different from PAYG withholding, which is money deducted from each employee's wage and remitted to the ATO.

Payroll tax revenue is substantial -- it is the single largest source of own-source revenue for most Australian state governments. In 2024-25, it generated over $35 billion across all states combined, funding public schools, hospitals, and infrastructure.

State-by-State Thresholds and Rates

Because payroll tax is state-based, the threshold and rate you pay depend on where your employees physically perform their work. Here is the 2025-26 snapshot for each jurisdiction:

Most states adjust thresholds and rates annually, typically effective 1 July. Always confirm the current figures with your state revenue office or use a calculator that keeps rates up to date automatically.

What Counts as Wages for Payroll Tax

One of the biggest mistakes employers make is underestimating their payroll tax liability by excluding items that actually count as wages. The definition of "wages" for payroll tax purposes is much broader than you might expect:

• Gross salary and wages -- base pay before any deductions
• Superannuation contributions -- including SG and salary sacrifice super
• Bonuses, commissions, and allowances -- including overtime and shift loadings
• Fringe benefits -- at their grossed-up taxable value
• Employee share schemes -- the value of shares or options granted
• Termination payments -- redundancy and ETPs (with some exemptions)
• Payments to contractors -- where the contract is effectively for labour (not services to the public)

The contractor provisions catch a lot of businesses off guard. If your "contractors" work primarily for you, receive regular payments, and look more like employees than independent businesses, their payments almost certainly count as wages. The ATO's 80/20 rule (personal services income) is a separate federal test -- state payroll tax has its own contractor rules.

How to Calculate Payroll Tax Step-by-Step

Let us walk through a practical calculation. Imagine you run a NSW-based business with the following annual wage bill:

• Gross salaries: $1,500,000
• Superannuation (11.5%): $172,500
• Bonuses: $50,000
• Contractor payments (deemed wages): $80,000
• Total taxable wages: $1,802,500

Step 1: Confirm your threshold. In NSW for 2025-26, the annual threshold is $1,200,000.

Step 2: Subtract the threshold from taxable wages.
$1,802,500 - $1,200,000 = $602,500 (wages subject to payroll tax)

Step 3: Apply the NSW rate of 5.45%.
$602,500 × 0.0545 = $32,836.25 annual payroll tax

Step 4: Divide by 12 for monthly payment (most states).
$32,836.25 ÷ 12 = $2,736.35 per month

The complication comes when you have wages in multiple states. You must pro-rate the threshold based on the proportion of your Australian wages paid in each state, which gets messy quickly. This is where a calculator becomes essential.

Grouping Provisions and Related Businesses

Here is where payroll tax gets sneaky. If you run multiple related businesses -- common ownership, shared employees, or one business provides services to another -- the state revenue office can "group" them. When businesses are grouped, they share a single threshold between them, which often pushes a business that was individually under the threshold into payroll tax territory.

Grouping applies when:

• Two or more businesses are controlled by the same person or entity (more than 50%)
• Employees regularly work across the businesses
• One business performs services primarily for another related business
• Businesses share management, premises, or branding

If you have grouped businesses in the same state, the total combined wages are tested against the single state threshold. One designated group employer claims the threshold; the others pay tax on every dollar of wages from the first dollar.

Exemptions, Rebates, and Concessions

Not all wages are taxable. Common exemptions and concessions include:

• Apprentice and trainee wages -- fully or partially exempt in most states (NSW, VIC, QLD, WA offer full exemptions)
• Maternity, paternity, and adoption leave wages -- exempt up to 14 weeks in most states
• Defence force leave -- exempt in all jurisdictions
• Payments to Aboriginal and Torres Strait Islander workers -- exempt in some states under specific programs
• Certain charity and public benevolent institution wages -- exempt for registered PBIs
• Small business rebates -- NSW offers a payroll tax rebate for new employees hired under certain programs

Every state also has specific industry concessions -- regional Victoria operates at about one quarter of the metro rate, and some states have COVID-era relief measures that are still partially in effect. Always check your specific state revenue office website before assuming something is exempt.

Lodgement, Payment, and Common Mistakes

Payroll tax returns and payments are due monthly in most states, generally by the 7th of the following month. An annual reconciliation is due by 21 July after the end of each financial year (or by 28 July in some states). The reconciliation calculates your actual liability based on full-year wages and either produces a refund or a shortfall payment.

Common mistakes we see business owners make:

1. Forgetting superannuation -- super is taxable wages in every state. Always include it.
2. Ignoring contractor payments -- if your contractor works only for you, they are probably deemed wages.
3. Missing the grouping rules -- two small companies with the same owner still count as one group.
4. Using the wrong state threshold -- employees physically working in a state count toward that state's threshold, regardless of where your head office is.
5. Late lodgement -- penalties start immediately and compound quickly. Even a nil return must be lodged on time.

Using payroll software that automatically calculates payroll tax, or at minimum a dedicated calculator for your state, is the easiest way to avoid these mistakes. MYOB, Xero, and QuickBooks all include payroll tax reports in their paid payroll subscriptions ($30 to $90 per month), but a free browser-based calculator gives you the same accuracy at zero cost.