PAYG Withholding — tax taken from wages

Anyone paying employees, paying directors as fees rather than wages, paying labour-hire workers in some cases, or paying contractors who haven't supplied an ABN. Investors and lenders may also need to withhold from interest and dividend payments where the recipient hasn't supplied a TFN. Most small Melton businesses encounter PAYG withholding through employees first.

Use the ATO tax tables or the online withholding calculator to determine the correct amount based on the employee's gross pay, the pay frequency (weekly, fortnightly, monthly), and what they ticked on the TFN declaration. The Single Touch Payroll system (STP Phase 2) reports each pay run to the ATO in real time and most modern payroll software does this automatically.

Mandatory for all employers since January 2022. Each pay run is reported to the ATO at the time of payment, including gross wages, withholding, super and allowances. End-of-year finalisation is done through STP rather than payment summaries — the year-end PAYG payment summary statement is no longer issued.

Withheld amounts go on the W1 (gross wages) and W2 (tax withheld) fields of your BAS or IAS each cycle. Small employers report quarterly with the BAS; medium and large withholders report monthly via IAS. The deadlines align with the relevant statement.

· Not getting a TFN declaration from new employees — without it you must withhold at the highest rate · Treating contractors as employees, or employees as contractors — Fair Work and the ATO both look past the contract to the substance · Forgetting to withhold from a director's fee paid as such (different rules from director's wages) · Late payment — even if the BAS is lodged on time, withholding becomes a debt the moment it's late and accrues GIC · Over-withholding on commission-only sales staff who have a TFN declaration on file (apply the right tax-table column)

Before hiring your first employee — the setup includes withholding registration, super-fund nominations, STP enrolment and workers comp. We do the setup as a one-off engagement and integrate it with payroll going forward at $12 per employee per pay run.