Payroll Tax vs PAYG vs Super – What’s the Difference?
Running a business in Australia has never been easier, as you have to manage several aspects. Payroll Tax Australia is certainly one area that you find overwhelming to handle. Also, Pay As You Go (PAYG) withholding and superannuation make it hard to meet obligations and deadlines. Well, these areas are no doubt really upsetting and time-consuming for most small businesses. Subsequently, the purpose of this blog post by Kirpa Tax is to demystify these areas. By reading through, you can understand the difference between payroll, PAYG, and super. This can help you to meet ATO obedience and funds competently.
Payroll Tax vs PAYG
It’s a state or territory tax levied by the Australian government on total taxable wages that exceed the annual threshold. This tax is paid by employers only and is not deducted from employees’ salaries. It’s considered an additional expense paid by the employer. Well, if you own a small business and salaries are below the threshold, you don’t need to recompense. Larger businesses have to register with the state revenue office to pay taxes. Whereas, PAYG Withholding is implemented by the Australian Taxation Office (ATO) as federal taxation system. As an employer, you can deduct tax from the take-home salaries of employees. Then you have to send withheld tax from workers’ wages to the ATO directly. When employees file a tax return, withheld tax is credited against their tax liability. If the withheld tax is greater, they receive a tax refund.
Businesses Superannuation Contribution
Superannuation, or super, is the retirement savings system in Australia for employees. As an employer, you are obliged to contribute 12% of an employee’s salary to a super fund. This is known as the Superannuation Guarantee (SG), where the employer is obliged to contribute regardless of the employee’s wages. Superannuation exists to help employees build a fund for retirement whilst they are working. You have to compute mandate super funding amount to contribute. Also, pay the super contribution quarterly as per the due dates with precise reporting to the ATO.
Meet Your Employer Tax Obligations Precisely
Working as a business owner, you may make some mistakes unintentionally relating to your responsibilities. However, these mistakes can cost you more, especially when ATO compliance is not an exception. Therefore, you should know common mistakes that can prove costly if not prevented.
- Mixing Payroll & PAYG
Payroll tax is paid by the employer as an expense, and PAYG is the withholding of employees’ salaries. Both are different, so you shouldn’t mix them up and confuse them to meet your obligations.
- Late Superannuation Payments
Superannuation has strict quarterly due dates for employers, so you shouldn’t make late payments. This could result in hefty interest charges, administrative penalties, and SG charges by the ATO.
- Poor Maintenance of Records
Meet your Employer Tax Obligations by keeping records of PAYG withheld, employees’ salaries, leave balances, payment dates, etc. Maintaining records also helps with easy tax return filing.
Australian tax legislation changes frequently, so Kirpa Tax Accounting Firm keeps you updated. We align you with Payroll Tax Australia, super, and PAYG compliance.
FAQ’s
Is payroll tax similar to PAYG in Australia?
Payroll Tax Australia is a state tax, whereas PAYG is income tax deducted from employees’ wages. Both have separate features & tax compulsions.
Does every business have to pay payroll tax to the government?
No! It’s payable when the set threshold exceeds taxable wages paid by the employer. If the threshold is lower than the set limits, there’s no need to pay this tax.
Can I deduct superannuation from the take-home salary of my employees?
You cannot deduct mandatory contributions such as Superannuation Guarantee from employees’ wages. Unless there’s a salary sacrifice or voluntary arrangement employees have agreed upon.
Do I need to pay PAYG withholding amounts to the ATO?
You must remit the amount to the ATO as per the quarterly or monthly arrangement. If the amount is above $ 1 million annually, remit electronically within a week.
Can I make late payments to the super fund of employees?
Late payment to the super fund won’t meet your Employer Tax Obligations. It triggers penalties, SG charges, and more by the ATO, so better to avoid.
Do I need to keep payroll records for my business?
You should keep records of PAYG Withholding, employee wages, and superannuation contributions. Keep records of super contributions, leave, wages, and payment dates for employees.
Do I need to hire a tax accountant for payroll compliance?
Kirpa Tax ensures that your payroll tax computations are precise in accordance with state tax regulations. This reduces the risk of penalties for non-compliance with the ATO.