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Payroll 101: Paying Staff and Australian Payroll Compliance Basics

Australian Dollars

As your business grows and you find the need to take on more employees to help you keep up, one of the most important skills you need to learn is ensuring you are making the correct payroll payments and remaining in compliance with the requirements of Australian Revenue Offices. One of the best ways to do this is to get a good accounting software program (like MYOB EXO with the EXO Payroll module). With the help of your accounting system, and these tips below you’ll be able to keep your employees and the ATO happy!

Paying Payroll Taxes

Payroll tax is a state based tax that is calculated on the wages you pay to your employees. If you expect your payroll to be higher than $550,000 annually, you will need to check registration requirements for your state. Your company should be familiar with Australian payroll requirements.

Pay Periods

Pay can be done weekly, fortnightly or monthly. You will calculate your employee wages and deductions. Once that is completed you can issue payroll checks.

Australia’s Tax System

Payroll uses a pay-as-you-go income tax system, which allows you to withhold taxes from your employees. Australia has a progressive tax rate that is based on income and hours worked. Different states and territories have different rates.

Payroll Tax

When your employee payments exceed the threshold for your state or territory your business is required to pay payroll taxes for salaries, wages, commissions, bonuses and allowances. Each state and territory have their own thresholds and tax rates.

Industrial Relations System

A variety of industrial regulations are established by the Australian Fair Work Act, which address the maximum number of hours an employee can work, working conditions, flexible working arrangements, vacation time, parental leave and more.

Workers Compensation Insurance

As an employer in Australia, all states and territories require you to carry workers compensation insurance for your employees. The premiums paid are based on a number of factors such as remuneration, industry type and claims history.


This is Australia’s retirement and pension program, and as an employer you are required to contribute a fixed 9 percent of your employee wages.

Fringe Benefits Tax

The provision of certain non-cash benefits, such as private health insurance or a company car, require your company to pay fringe benefit taxes. You must report on your PAYG payment summary any benefit that has a value of $2,000 or more.

Christmas tax and accounting

Christmas Accounting Considerations to Keep in Mind

Christmas tax and accounting

As we approach the end of 2015 our attention turns to rewarding our staff to show them that their hard work and dedication has been noticed and appreciated.

There are a variety of ways that employers can reward staff Christmas parties, bonuses, gifts and leave. These are great ways of boosting the morale of staff but they can be a headache when it comes to entering them into your accounting software system as you try to work out what is tax deductible and what isn’t.

Christmas Bonuses

A Christmas bonus is morale boosting for employees – especially if it is linked to their work performance over the year.

Of course you’ll need to check the books to make sure the bonus structure doesn’t break the bank, as it is important that the yearly bonus system you choose to adopt is fair to your employees and covers you and your business if you go through a challenging period. Choosing a fair system that rewards the most hardworking members of your workforce will help you to keep your best members of staff motivated and encourage them to stay at your company.

Christmas Party

When your staff have been working hard for you all year it can be nice to reward them with an office Christmas party. It allows staff to socialise, let their hair down and can be very morale boosting.

An important consideration, however, is that in the past the office Christmas party was tax deductible, but it no longer covers food, drink and entertainment.

You will find yourself having to pay Entertainment Fringe Benefits Tax if the cost per person is greater than $300 for the office Christmas party, so keep this in mind when setting the bar tab or choosing the venue/restaurant.

Christmas Gifts

Tax deductable Christmas gifts for staff

While employee entertainment in no longer tax-deducible, non-entertainment gifts up to the value of $300 per employee are still fully tax deductible and won’t incur Fringe Benefit Tax, so gifts are becoming an increasingly popular way to treat staff at Christmas.

Popular non-entertainment gift options include multi-store gift cards and Christmas food hampers. Staff love these kinds of useful gifts and the bonus for you is they fall under the $300 exemption from Entertainment Fringe Benefits tax.

Annual Leave

As the New Year approaches it’s important to keep track of your employees’ annual leave accrual and keep on top of each situation. You must allow employees to carry over their accrued annual leave to the next year, but there are two situations in which you can direct employees to take annual leave:

  1. If your business shuts down over Christmas you can direct all staff to take necessary annual leave to cover non-public holidays
  2. If they have accrued excess annual leave. ‘Excess’ annual leave differs from industry to industry and you can check out the excess in your industry here.

Keeping on top of excess leave is important in order to mitigate the risk that employees with excess leave will resign, leaving you having to pay out a large sum of accrued leave pay.

A good business management and accounting system like MYOB Exo allows you to integrate accounting and payroll functions to make this task much simpler.