Fortunately for small business owners in Australia, the ATO makes calculating PAYG for your employees simple with their easy to read tax tables.
Whether you do pay runs weekly, fortnightly or monthly, the ATO tax tables clearly lay out how much pay withholding you need to send to the ATO per dollar amount your employees earn. Let’s take a closer look.
If you’re an employer, you have an obligation to withhold some of your employees’ wages and send it to the ATO on their behalf.
PAYG is a system of withholding amounts from payments to employees so they can meet their end of year tax liabilities.
You have to register for PAYG and withhold amounts weekly, fortnightly, or monthly on your employees’ behalf. These amounts are used to pay the employee’s income tax at the end of the financial year.
If the amount withheld is more than the actual tax payable, the employee will get a tax refund, or they might need to supplement if there’s a shortfall.
The ATO specifies how much employers need to withhold in their PAYG tax tables and the withholding is called ‘PAYG withholding’.
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To start paying PAYG for your employees, you’ll first need to register with the ATO.
You can do so on the online business portal through the ATO website.
After you have calculated and paid withheld amounts, you need to report these amounts on your activity statements. You also need to provide PAYG withholding summaries to all employees and lodge a PAYG withholding annual report.
Most commonly you’ll need to withhold from:
If an employee leaves or retires you need to:
The ATO produce a range of tax tables to help you work out how much to withhold from payments you make to your employees or other payees.
This year, new tax tables have been created for study and training support loans which replace earlier HELP/TSL/SSL and SFSS tables. And if you employ people that are on holiday in Australia, then another table called the tax table for working holiday makers applies.
In addition to the tables, the ATO also has an online tax withheld calculator that calculates the correct amount of tax to withhold. There is one calculator for employees and another for contractors. To use the calculators, you will need information employees supply in their tax file declaration, withholding declaration and medicare levy variation declaration.
The most common tax tables you will need to refer to as an employer are the weekly, fortnightly or monthly tax tables that correspond with how often you make pay runs.
Use the weekly tax table if you pay your employees on a weekly basis.
Weekly tax table sample calculation
Your employee is paid $950 a week.
Looking at the middle column of the tax table, it shows that the weekly PAYG withholding to withhold for that employee = $165
Use the fortnightly tax table if you pay salaries on a fortnightly basis.
Fortnightly tax table sample calculation
Your employee earns $1072.00 fortnightly.
Looking at the middle column of the tax table, it shows that the fortnightly PAYG withholding to withhold for that employee = $90
Use the monthly tax table if you pay salaries on a monthly basis.
Monthly tax table sample calculation
Your employee earns $1885.00 monthly.
Looking at the middle column of the tax table, it shows that the fortnightly PAYG withholding to withhold for that employee = $74
Note that the weekly, fortnightly or monthly tables also apply if you pay any of the following:
Pick the table that corresponds with how often you make these payments.
Other tax tables may apply if you made payments to shearers, workers in the horticultural industry, performing artists, casual employees and workers who are on a working holiday.
If your employee has an accumulated debt (e.g HELP, SSL, TSL), you’ll need to use HELP/SSL/TSL tax tables or if your employee is entitled to make an adjustment for the Medicare levy, you’ll need to use adjustment tax tables.
If your employee is entitled to a tax offset, you need to use the ATO’s Ready reckoner for tax offsets to convert their estimated annual entitlement to a weekly figure that you can subtract from the withholding amount.
Single Touch Payroll is the new system where you report payroll, including PAYG, to the ATO every pay run as opposed to the end of the financial year.
Small employers with 19 or less employees now need to report their employees’ payroll information through Single Touch Payroll. (Large employers with 20 or more employees are already using Single Touch Payroll).
Micro employers with less than 4 employees can report through their registered tax or BAS agent on a quarterly basis.
You can easily comply with Single Touch Payroll using QuickBooks Payroll powered by Employment Hero and even try it out for free for 30 days.
As you can see from our sample calculations using the ATO tax tables, working out PAYG withholding for your employees is simple. Make sure to check if you need to use any other tables for your employees, for example, if you need to make a Medicare levy adjustment. Keep records and provide summaries to your employees. Use Single Touch Payroll and a solution like QuickBooks Key Pay to simplify the whole process.
If this article was useful, head to the QuickBooks Resource Centre for more articles to help run your small business smoothly.
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