PAYG withholding

Members-only Log-in at right to access more information and value-added content, such as: a 'tax withheld' calculator tax tables for various pay periods (which include the flood levy) registration details. Not a member? Join now, or view member benefits.

What is PAYG withholding?

Putting away for later

Every staff member on your payroll will have at least two reasons to be grateful – first that you are giving them a salary, and second that you are taking some money out of that salary each pay day to cover their tax bill.

The pay-as-you-go withholding system (PAYG withholding) is used to incrementally put aside portions of tax (to 'withhold' it) throughout the financial year towards the employee's expected liability at year's end. So it is not an extra tax on you as employer – you are simply the go-between for the government to collect its share of tax before you pay your employee.

Other common payments that you need to withhold tax from include director fees as well as businesses that have not quoted their Australian business number (ABN).

Putting away for later
For salaries, the PAYG system is based on weekly, fortnightly or monthly wage payments being extrapolated into a quarterly income level from which a likely tax liability for the year is estimated, according to personal tax rates.

Your business, as a 'payer', is required to supply each employee with a 'payment summary' at financial year's end, which records the total amount that your business withheld as tax.

For your employee, the actual tax liability is worked out from their final tax return, and the instalments withheld during the year are credited against their tax assessment. Having put aside too much or too little will determine whether they get a refund or need to pay more tax – after all their other (non-work related) income, deductions and adjustments are taken into account.

Reviewed February 21, 2013

Further reading:
Hiring: Your staffing options
An extra pay period can be dangerous to tax health

Back to top