PAYG withholding is how income tax is collected from Australian employment. The employer calculates the amount to withhold from each payment using the tax tables, deducts it, and remits it to the Australian Taxation Office on a reporting cycle determined by the size of the business.
What determines the amount
Withholding depends on the employee's declared circumstances: whether they have provided a tax file number, whether they are claiming the tax-free threshold, their residency status for tax purposes, and whether they have study or training support loans to repay. An employee who has not provided a tax file number is withheld at the top rate, which is why collecting the declaration at onboarding matters.
- Reported through Single Touch Payroll each pay run rather than in an annual return
- Remittance frequency varies with the employer's withholding volume
- Separate from superannuation, which is an employer cost rather than a deduction
Why it matters when hiring internationally
Because Single Touch Payroll reports to the tax office on every pay run, errors surface almost immediately rather than at year end. That is helpful, but it also means a misconfigured payroll produces a visible compliance trail from the first payment.