As businesses grow and hire more staff, payroll tax can quietly become one of their largest state tax obligations. In Victoria, exceeding the payroll tax threshold (even temporarily) can trigger registration, reporting and payment requirements that many employers may not be prepared for.

This article provides a practical overview of payroll tax in Victoria, including who needs to register, current rates, what counts as taxable wages, and key risk areas we see for small and medium businesses.

What is payroll tax?

Payroll tax is a state-based tax on wages paid by employers. In Victoria, it is administered by the State Revenue Office (SRO) and is calculated on an employer’s total taxable Victorian wages.

Payroll tax can apply to individuals, companies, trusts and groups of related entities.

Who needs to register for payroll tax in Victoria?

You are generally required to register for payroll tax if:

• You pay taxable wages in Victoria, and
• Your total Australian wages exceed the payroll tax threshold.

From 1 July 2025, the key thresholds are:

• Annual threshold: $1,000,000
• Monthly threshold: $83,333.

If your wages exceed the threshold in any month, you may be required to register and lodge returns from that point.

Payroll tax rates (from 1 July 2025)

There are two rates of payroll tax for employers in Victoria:

• 4.85% for metropolitan employers
• 1.2125% for regional employers

To qualify as a regional employer, at least 85% of your Victorian taxable wages must be paid to employees who perform more than half of their work in regional Victoria.

Payroll tax threshold

The payroll tax threshold operates as a deduction that reduces taxable wages. From 1 July 2024, a phasing-out of the threshold was introduced with the effect that:

• Employers with Australian wages under $3 million can access the full threshold
• Wages between $3 million and $5 million are subject to a phasing-out of the threshold
• Employers with wages above $5 million receive no threshold deduction.

Interstate wages

Interstate wages also effect the payroll tax threshold employers receive and is based on the proportion of Australian wages paid in Victoria. For example, where an employer paid 75% of their taxable wages in Victoria, they would only be entitled to receive 75% of the payroll tax threshold.

Payroll tax legislation is largely harmonised across the States and Territories, and a similar apportionment of the payroll tax threshold will generally apply for wages paid in those other States and Territories.

What counts as taxable wages?

Payroll tax applies to more than just salaries. Taxable wages commonly include:

• Salary and wages
• Allowances, bonuses and commissions
• Superannuation contributions
• Director’s fees
• Fringe benefits
• Certain termination payments
• Payments to contractors (subject to specific exemptions).

There are also specific exemptions, such as certain parental leave payments, approved apprentices and trainees, parts of redundancy payments, workers compensation as well as motor vehicle and accommodation allowances up to a set amount, provided strict conditions are met.

Contractors

Payments to contractors can be deemed to be wages where the contractor provides services to a business under a ‘relevant contract’. These rules apply irrespective of whether the contractor is a sole trader, company, or other business structure. Where the rules apply, the business engaging the contractor is treated as the employer for payroll tax purposes and is therefore required to report and pay payroll tax on payments to the taxable contractors.

There are specific exemptions that can exclude contractor payments from payroll tax, including where the contractor:

• Ordinarily provides services to the general public (not mainly to one principal)
• Engages others to perform the work
• Performs work that is ancillary to the supply of goods
• Provides services for less than 90 days in a financial year.

These exemptions are narrowly defined and must be assessed for each contractor. Contractor arrangements are a key focus area for the SRO, particularly during audits and voluntary disclosure reviews.

Grouping rules

The payroll tax grouping rules in Victoria can apply where businesses are under common ownership or control (whether direct or indirect) and/or share employees.

Where grouping applies:

• Only one group entity can be nominated to receive the payroll tax threshold and is called the ‘designated group employer’.
• Other group members are ‘ordinary members’ and don’t receive any portion of the threshold.
• Each group entity is still required to lodge payroll tax returns even if they are part of a group.

Payroll tax grouping is intentionally broad and can apply to businesses operating in separate industries if they are commonly controlled or share employees. Due to this broad application, employers can apply to the SRO for discretion to be excluded from being a group, which will generally only be successful if the businesses operate independently of each other.

Due to its complexity, grouping is one of the most common areas where businesses can be found non-compliant during SRO reviews.

Payroll tax surcharges for large employers

Additional payroll tax surcharges apply to larger employers. If Australian wages exceed $10 million, a 1% surcharge applies, increasing to 2% for wages above $100 million. These charges apply only to Victorian wages and include the Mental Health and Wellbeing Levy and the COVID‑19 payroll tax surcharge.

Lodgement and payment obligations

Once registered, the SRO will direct whether the employer will lodge for payroll tax monthly or annually.

Monthly payroll tax returns are due by the 7th day of the following month. Both monthly and annual lodgers are required to lodge an annual reconciliation which is due by 21 July. The returns must still be lodged even if no tax is payable.

Late lodgement or underpayment can result in interest and penalties.

Need help with payroll tax?

Payroll tax is an area where early advice can prevent costly errors, especially considering the SRO regularly conducts compliance reviews to ensure employers are meeting their payroll tax obligations.

At AFS, we regularly assist clients with:

• Payroll tax registrations and reviews
• Grouping analysis
• Contractor determinations
• SRO audits and voluntary disclosures.

This article provides general information only and does not constitute tax advice. Payroll tax obligations depend on your specific circumstances. If you’re unsure whether payroll tax applies to your business, or whether you’re paying the correct amount, please get in touch with our team.