If you employ staff in Australia, your Pay As You Go withholding employer reporting obligations run on a fixed rhythm: register for PAYG withholding before you make the first payment you have to withhold from, report every pay run through Single Touch Payroll on or before payday, remit the withheld amounts to the ATO on your monthly or quarterly activity statement, and finalize each employee’s year-to-date figures by 14 July. Miss any of these steps and the ATO can charge failure-to-lodge penalties. If you’re a company director, unpaid withholding can be recovered from you personally.
Register Before Your First Withholding Payment
You need an active Australian Business Number first. Registration for PAYG withholding must happen before you make the first payment you’re required to withhold from, not after.1Business.gov.au. Register for Pay As You Go (PAYG) Withholding With an ABN in hand, you can register through the ATO’s online services for business, by phone, or through a registered tax or BAS agent.
The obligation sits under the Taxation Administration Act 1953. Missing the registration deadline can trigger a failure-to-lodge penalty of one penalty unit for each 28-day period the registration is overdue, capped at five penalty units.2Australian Taxation Office. Failure to Lodge on Time Penalty The dollar value of a penalty unit is indexed on 1 July each year under section 4AA of the Crimes Act 1914, so check the current figure before estimating what you owe.
Payments You Must Withhold From
PAYG withholding covers considerably more than ordinary wages. You must withhold from:3Australian Taxation Office. Pay As You Go (PAYG) Withholding
- Salaries, wages, allowances, leave loading, overtime, bonuses, and employment termination payments.
- Payments to company directors, members of parliament, statutory office holders, and defence force members.
- Amounts paid to workers under a labour hire arrangement.
- Payments to contractors under a voluntary withholding agreement.
- Payments to suppliers who have not quoted an ABN.
- Interest, dividends, or royalties paid to foreign residents, or to any payee who has not provided a Tax File Number.
- Super income streams and super lump sums paid directly to recipients.
The no-ABN rule is the one that most often catches businesses out. When a supplier provides goods or services worth more than $75 excluding GST and does not quote an ABN, you must withhold at the top marginal rate and give the supplier a payment summary at the time you pay the net amount or as soon as practicable afterwards.4Australian Taxation Office. Withholding If ABN Is Not Provided The safest practice is to ask for the ABN before you process any payment.
Collect Employee Tax Information Up Front
Every new employee should complete a Tax File Number declaration before their first payday. That form tells you the employee’s TFN, residency status, and whether they want to claim the tax-free threshold, which for 2025–26 remains at $18,200.5Australian Taxation Office. Tax Rates – Australian Resident Without a completed TFN declaration, you must withhold at the top marginal rate.
Use the ATO’s withholding tax tables to calculate the deduction. The tables are organised by pay period with separate columns depending on whether the employee claims the tax-free threshold, and foreign residents have their own rate schedule.6Australian Taxation Office. Weekly Tax Table Most payroll software handles this automatically, but you are still responsible if the software calculates incorrectly because of bad data entry.
If an employee’s circumstances change during the year, they lodge a separate withholding declaration. That covers claiming a tax offset, changing their tax-free threshold claim, updating residency status, or notifying you of a HELP or Australian Apprenticeship Support Loan debt.7Australian Taxation Office. Tax File Number and Withholding Declarations A withholding declaration takes effect from the first payment you make after receiving it, and a valid TFN declaration must already be in place before the employee can lodge one.
Allowances are generally added to the employee’s normal earnings, with withholding calculated on the combined total.6Australian Taxation Office. Weekly Tax Table Some allowances have specific withholding treatment, so check the ATO’s guidance if your payroll includes travel, tool, or car allowances.
Report Each Pay Run Through Single Touch Payroll
Single Touch Payroll is the ATO’s digital reporting channel. Each time you run payroll, your STP-enabled software sends the ATO a report containing salaries and wages, PAYG withholding amounts, and superannuation liability information, on or before payday.8Australian Taxation Office. What Is Single Touch Payroll The ATO receives near-real-time data rather than waiting for quarterly or annual summaries.
STP Phase 2 expanded what has to be reported. Employers now break gross payment amounts down into specific income types rather than reporting a single lump figure, separating items like gross salary, allowances by type, paid leave, overtime, and lump sum payments into their own categories.9Australian Taxation Office. Single Touch Payroll Phase 2 Employer Reporting Guidelines The change reduces how much employees have to enter manually in their tax returns.
If you make an error in an STP submission, most payroll software lets you correct it in the next pay run, or you can lodge an update event between pay runs. The submission functions as a legal declaration that the information is true and correct, so treating corrections casually is a mistake. You can handle STP reporting yourself or authorise a registered tax agent or BAS agent to manage it for you.
STP also captures your super obligations. Reporting super through STP does not replace the obligation to actually pay super contributions to each employee’s fund by the quarterly due dates. If your reported super liabilities and actual payments do not match, the ATO will follow up.10Australian Taxation Office. Get Your Super Guarantee Reporting Right
Remit Withheld Amounts on Your Activity Statement
STP tells the ATO what you have withheld. You still have to actually pay it, through your Business Activity Statement or Instalment Activity Statement. The cycle depends on how much you withhold each year.
Small withholders, meaning less than $25,000 per year in withholding, typically report quarterly. Medium and large withholders report monthly. Monthly activity statements are due on the 21st of the following month. Quarterly activity statements are generally due on the 28th of the month after the quarter ends, except the December quarter, which is due 28 February.11Australian Taxation Office. Activity Statements Electronic lodgment can extend some quarterly deadlines. The July–September quarter, for example, shifts from 28 October to 11 November for electronic lodgers.
Falling behind on remittance is where the real danger lies. Unpaid amounts compound quickly and can trigger director penalty notices.
Finalize by 14 July
After 30 June each year, you must submit a finalization declaration through your STP-enabled software by 14 July. That confirms the year-to-date figures for each employee are complete and accurate.12Australian Taxation Office. End-of-Year Finalisation through STP Once you finalize, employees can see their income and tax information pre-filled in their myGov account, which feeds into their personal tax return.
Finalization through STP replaced the old requirement to issue individual payment summaries (formerly group certificates) and lodge a payment summary annual report. If you have reported and finalized all employee information through STP, neither of those steps applies.12Australian Taxation Office. End-of-Year Finalisation through STP
If you cannot meet 14 July, apply for a deferral from the ATO before the date passes. Missing the deadline without one exposes you to failure-to-lodge penalties, starting at one penalty unit per 28-day period and scaling with your entity size.2Australian Taxation Office. Failure to Lodge on Time Penalty
How Late Lodgment Penalties Scale
The base penalty is one penalty unit for each 28-day period, or part thereof, that a document is overdue, capped at five penalty units.2Australian Taxation Office. Failure to Lodge on Time Penalty A multiplier then applies based on your size:
- Small withholders (less than $25,000 per year): base penalty, no multiplier.
- Medium withholders (withholding between $25,000 and $1 million, or assessable income between $1 million and $20 million): base penalty times two.
- Large withholders (withholding over $1 million, or assessable income of $20 million or more): base penalty times five.
- Significant global entities: base penalty times 500.
A large withholder that is five 28-day periods overdue faces a maximum of 25 penalty units per overdue document. For a significant global entity, the same delay reaches 2,500 penalty units. Because the penalty unit amount is indexed each 1 July, the dollar impact rises over time.
Director Personal Liability for Unpaid Withholding
Company directors carry a risk sole traders and partnerships do not. If the company fails to pay withheld amounts by their due date, the ATO can recover those amounts from you personally through a director penalty notice.13Australian Taxation Office. Director Penalties
A director penalty notice gives you 21 days to act. What you can do inside those 21 days depends on how quickly the company reported the liability:
- Reported within three months of the due date: you can clear the penalty by paying the outstanding amount in full, appointing an administrator, appointing a small business restructuring practitioner, or beginning to wind up the company.
- Reported more than three months after the due date, or never reported: the only way to clear the penalty is to pay the company’s liability in full. Administration and wind-up are locked out.
The ATO treats estimated or unreported amounts as if they were never reported, so guessing at your liability and lodging late does not preserve your options.13Australian Taxation Office. Director Penalties Staying current on STP reporting is the single most important thing a director can do to keep those options open if the company runs into trouble.
Keep Records for Five Years
The Taxation Administration Act 1953 requires businesses to retain all PAYG withholding records for a minimum of five years from the date of the relevant report or transaction. That covers TFN declarations, withholding declarations, pay records showing gross amounts and deductions, proof of amounts remitted to the ATO, and correspondence about withholding variations.
Records can be digital or physical, but they must be in English or readily convertible to English, and available for inspection if the ATO asks. Most modern payroll software retains this data automatically. You are still responsible for making sure backups exist if you change providers or close a subscription.
If you cannot produce records when requested, consequences range from administrative penalties to prosecution in serious cases. Those records are your primary defence against allegations of under-withholding or non-remittance, and disputes often surface well after the financial year closes, particularly when former employees lodge amended returns or the ATO runs data-matching exercises.