What employers need to know about pay-as-you-go (PAYG) withholding.
Getting the help you need:
As an employer, you have certain tax and super obligations you need to be aware of. These obligations include:
- pay as you go (PAYG) withholding
- Super
- fringe benefits tax (FBT)
Running a business or a non-profit organisation gets more complex when you have employees or independent contractors. When you make payment to employees or contractors, you may be required to withhold an amount and send it to the ATO at regular intervals. The ATO calls this process PAYG withholding.
To comply with your PAYG withholding obligations you need to:
- register for PAYG withholding
- work out the status of your workers
- become familiar with the types of payments you need to withhold from
- work out the amount to withhold
- report and pay withheld amount to the ATO
- provide payment summaries and lodge an annual report at the end of each income year.
Under the PAYG withholding system:
- the business, non-profit organisation or individual making the payments is called the payer, and
- the individual being paid is called the payee.
What you need to know about PAYG withholding.
Register for PAYG withholding -
You will need to register for PAYG withholding as soon as you know you need to withhold. You can register:
- online at www.ato.gov.au/onlineservices
- by phoning 13 28 66 between 8:00am and 6:00pm Monday to Friday
- by completing an Add a new business account (NAT 2954) form
Work out the status of your workers -
You have different obligations depending on whether your payee is an:
- employee, or
- independant contractor.
The status of your worker depends on your working relationship and is usually worked out by the contracual arrangements made between the two of you.
NOTE: To help you work out the status of your workers, the ATO have developed a decision making tool. To use the decision tool, visit www.ato.gov.au/employers and selecct ‘Contractor or employer?’ – ‘Employee/contractor decision tool’.
Work out the amount to withhold.
The ATO produces tax tables to help you work out how much to withhold from your payments to your payees.
These PAYG withholding tax tables are available for weekely, fortnightly, monthly and quarterly pay periods. You can also get tax tables for particular types of payments, such as payments made under voluntary agreement.
NOTE: The ATO has an electronic calculator to help you work out the withholding amount and the employment termination payment withholding amount. To use the calculator, visit www.ato.gov.au/employers and select:
- tax withheld calculator - this calculator will help you work out the correct amount to be withheld, and
- employment termination payment calculator – this calculator will help you work out the tax-free and taxable amounts of an employment termination payment made on or after 1 July 2007.
To work out how much to withhold, use information your payee gives you on their Tax file number declaration (NAT 3092) and, if applicable, Withholdong declaration (NAT 3093). For example, they may be claiming the tax-free threshold that is shown on their Tax file number declaration, or they may be entitled to a dependent spouse tax offset that is shown on their Withholding declaration.
If your payee is under a voluntary agreement, use the information provided in the agreement to work out the amount to withhold.
Report and pay the withheld amounts.
How often you report and pay amounts depends on whether you are a small, medium or large withholder.
The ATO will tell you what type of withholder you are after you register.
Prepare payment summaries and lodge annual report.
Within 14 days after the end of each financial year (30 June), you need to give each of your payees a payment summary that shows how much you:
- paid, and
- withheld.
You need to also provide the ATO with a PAYG withholding payment summary annual report and you can print the individual payment summaries on plain paper.
If you don’t report electronically, the ATO will give you blank payment summary forms and a personalised PAYG payment summary statement to use.
NOTE: The ATO will send this stationery to you around May each year.
Payment summaries.
There are different payment summary forms depeding on the type of payment. Examples include payment summaries for:
- individual non-business payments
- labour hire and other specified payments
- voluntary agreement payments
- employment termination payments
- personal services attributed income payments
- payments where ABN not quoted.
It’s important you use the appropriate payment summary.
NOTE: To order payment summaries:
- visit the ATO website at www.ato.gov.au and select ‘Find a form od publication’ – ‘Online ordering’, or
- call the ATO’s automised self help ordering service on 13 72 26 and press 4. You’ll need your Australian business number (ABN) and the names of the publications you wish to order.
The ATO provides instructions for completing these payment summaries. To obtain copies, visit the ATO website
PAYG withholding payment summary annual report.
If you have payroll software that meets the ATO’s specifications, you can submit your PAYG withholding payment summary annual report using electronic commerce interface (ECI).
If not, use the stationery the ATO send you so you can provide them with the following:
- a completed personalised PAYG payment summary statement (NAT 7885)
- the originals of all the payment summaries you issued for the financial year.
If you misplace your personalised payemnt summary statement or it contains an error, you can use a generic PAYG payment summary statement.
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Warren Kruger is an Australian Tax Specialist and Advisor. For a FREE Report “7 Essential Strategies to Reduce Your Taxation NOW!”,enter your name and email address in the Opt In Box located on the top right hand side of this article.
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