By Mark Churchmichael, Head of Compliance & Tax

Payroll tax is one of the most significant, and least understood, state taxes facing growing businesses. Many employers only focus on it once assessments arrive, by which point opportunities to legally reduce exposure have already been missed.

This guide explains what payroll tax is, the current thresholds and rates in NSW, Victoria and Queensland, seven legitimate strategies to reduce exposure, and a deep dive into grouping rules and regional concessions, with practical examples throughout.

What Is Payroll Tax?

Payroll tax is a state-based tax on wages paid by employers once total wages exceed a prescribed threshold.

Importantly, “wages” are broader than base salary and can include:

• Superannuation
• Directors’ fees
• Certain contractor payments
• Allowances and bonuses
• Some fringe benefits

Once registered, payroll tax is generally paid monthly and reconciled annually.

Payroll Tax Rates and Thresholds

New South Wales (NSW)

• Threshold: $1.2 million
• Rate: 5.45%

Victoria (VIC)

• Threshold: $1 million
• Rate: 4.85% (metro employers)
• Concessional rate: available for eligible regional employers

Queensland (QLD)

• Threshold: $1.3 million
• Rate: 4.75% (higher rates apply for very large employers)

Once the threshold is exceeded, payroll tax generally applies to every dollar above it.

Seven Legal Ways to Reduce Payroll Tax Exposure

1. Stay Under the Threshold (If You’re Close)

If your wages are just under or just over the threshold, small adjustments can eliminate payroll tax entirely.

NSW example:

• Wages: $1.25m
• Excess over threshold: $50,000
• Payroll tax: ~$2,725 per year

Reducing taxable wages by $50,000 removes payroll tax completely.

This can often be achieved by:

• Timing bonuses
• Adjusting remuneration mix
• Replacing taxable wages with exempt components

2. Use Genuine Offshore or Overseas Workers

Wages paid to employees who:

• Perform services entirely outside Australia, and
• Are genuinely employed offshore by an independent company

may be excluded from payroll tax.

Sham arrangements or Australian-based control can trigger reassessment.

Victoria example:

Two offshore support roles at $90,000 each:

• Payroll reduced: $180,000
• Payroll tax saving @ 4.85% = $8,730 per year

3. Apprentice and Trainee Wage Exemptions

All three states provide exemptions (full or partial) for wages paid to:

• Apprentices
• Trainees
• Approved training programs

NSW example:

• Apprentice wages: $70,000
• Payroll tax saving @ 5.45% = $3,815 per apprentice per year

This is often one of the most overlooked payroll tax concessions.

4. Fringe Benefits and Other Exempt Wages

Not all employee benefits are payroll taxable.

Depending on the state and benefit type, certain items may be:

• Fully exempt
• Concessionally taxed
• Excluded when structured correctly

Careful remuneration design can reduce both payroll tax and income tax leakage.

Examples may include provision of a laptop computer, tablet or a mobile phone to an employee in lieu of wages or remuneration which may otherwise be taxable.

5. Reducing Above-Market Director Remuneration

Owner-directors often pay themselves salaries well above market rates, inflating payroll tax unnecessarily.

NSW example:

Director salary reduced from $300,000 to $200,000:

• Payroll reduction: $100,000
• Payroll tax saving @ 5.45% = $5,450 per year

Excess profits may often be extracted more efficiently via dividends or trust distributions (where appropriate).

6. Contractors – Use Carefully, But Strategically

Contractor payments can be excluded from payroll tax only if exemptions apply, such as:

• Contractors providing services to the public generally
• Contractors working for multiple clients
• Short-term engagements meeting state-based tests

Misclassification is a major audit trigger.

VIC example:

$200,000 of qualifying contractor payments:

• Payroll tax saving @ 4.85% = $9,700 per year

7. Understand (and Manage) Payroll Tax Grouping Early

Grouping is one of the largest and most expensive payroll tax traps.

What Is Payroll Tax Grouping?

Grouping rules prevent businesses from splitting operations to access multiple thresholds.

When grouped:

• Wages across all entities are combined
• Only one threshold applies
• Payroll tax is calculated on total group wages

Grouping rules are broadly similar across NSW, VIC and QLD.

How Grouping Happens:

An entity can be grouped if any one of the following applies:

1. Common Control

• Same person(s) control more than 50% of voting power or decision-making.

2. Common Directors or Shareholders

• Frequent in family business and Holdco/ Operating co structures.

3. Trust Structures

• Family trusts commonly pull multiple entities into a single group through beneficiaries or trustees.

4. Shared Employees

• Employees working across entities without arm’s length arrangements.

Practical Grouping Example

A business owner controls three entities and would have the following payroll tax outcomes if grouped:

This applies even though no single entity exceeded the threshold on its own.

Can You Be Excluded from Grouping?

All three states allow applications for exclusion, but only where:

• Entities operate independently
• There is no practical common control
• Employment and financial decisions are genuinely separate

These are discretionary and rarely granted where family ownership exists.

Payroll Tax in Regional Areas

Victoria

• Reduced payroll tax rates for eligible regional wages
• Can materially reduce payroll tax even if head office is in Melbourne

Queensland

• Regional payroll tax rebates
• Additional incentives for apprentices and trainees in regional areas

New South Wales

• No reduced regional rate
• Statewide apprentice and trainee exemptions still apply

Strategic placement of regional teams can significantly reduce payroll tax, even within grouped businesses.

Comparison: Strategies and Indicative Savings

Savings are indicative and depend on eligibility and correct structuring.

Final Thought

Payroll tax is not just a compliance issue, it’s a structural tax that rewards planning and punishes inattention.

For businesses approaching thresholds or operating in groups:

• Small changes can eliminate payroll tax
• Structural decisions can save tens of thousands each year
• Early advice preserves options that disappear later

The key is acting before wages and structures lock in, not after assessments arrive.

Did you find these insights valuable? Follow Stewart & Smith Advisory for more expert guidance on navigating the complexities of business finance.