How to calculate payroll tax

It's no secret that there's far more to running a small business than meets the eye – especially where paying employees is concerned. Here, we break down the ins and outs of payroll tax, including how to calculate it and the common errors that crop up when determining the amount to pay.

Balancing the books isn't always the easiest task, especially when it comes to managing payroll tax – using an expert accountant helps take the weight off your shoulders.

What is payroll tax?

Payroll tax is a state based tax. Generally speaking, payroll tax is due on wages payable from an employer to employees, used for general purposes within the state. The amount of payroll tax you'll need to pay as an employer differs depending on where you're located in Australia – here in New South Wales, the current payroll tax rate sits at 5.45 per cent. If your total wages exceed the monthly threshold, you need to register your payroll tax with Revenue New South Wales. The thresholds are:

• $71,311 for 29 day months.
• $73,770 for 30 day months.
• $76,230 for 31 day months. 

These payments are due within a week after the end of each month.

What are the common errors with payroll tax?

Where there is money, mistakes often aren't too far behind – payroll tax is no exception. Kick-starting a small business comes with its own hurdles, so it's key to nail the payroll tax process to make sure you're not creating more problems in the long run. The good news is that understanding the potential problems means you can make sure you're not running the risk of getting into trouble. Errors commonly seen with payroll tax include:

Not registering

Employers are required to register their payroll tax if their total wages exceed the predetermined monthly threshold for their state.

Miscalculating payroll tax

If you're not used to balancing books, it can be fairly easy to make mistakes when determining how much payroll tax you need to pay. It's vital to record and use gross wages, rather than net wages. Furthermore, you'll need to remember to correctly proportion fringe benefits – any extras you give your employees. This doesn't include salary sacrifices.

Omitting contractor payments

It's not just your regular staff you'll need to worry about – those who employ contractors need to include their liable contractor payments as part of their payroll tax. In some cases contractors may be exempt from such payments. A situation where this may apply is when the contractor hires someone else to fulfill their duty for them. In any case, it's always best to check with an expert accountant to ensure you're including the right payments.

A business accountant helps in making sure you're up to date in your payment obligations.

Supporting Sydney businesses

At Wilson Porter, we understand the small business journey. Between our expertise and our familiarity with the Sydney market, we're confident in our ability to provide only the highest quality advice for a range of financial matters, dedicated to helping our clients achieve their business goals in the smoothest ascent possible. For more information, get in touch with our team.