How to Register for PAYG Withholding Before You Start Paying Employees

When do you need to register for PAYG withholding?

PAYG withholding is the Australian system under which a payer withholds tax from certain payments and sends the withheld amounts to the Australian Taxation Office (ATO).

You generally need to withhold from payments to employees and directors. PAYG withholding can also apply to contractors who ask to enter into a voluntary agreement and to payments to businesses that do not quote their ABN.

The registration deadline is important: you must register before you are first required to make a payment that is subject to withholding. The ATO states that this requirement applies even if you do not actually withhold an amount from that particular payment.

You register the business once for PAYG withholding; you do not register separately for every employee you hire.

How do you register PAYG withholding online?

If your business already has an active ABN, you can register its PAYG withholding account through ATO Online services for business. Online services for business allows businesses and organisations to manage tax registrations, including PAYG withholding.

Access to Online services for business uses a Digital ID such as myID. If you are new to the service, you need to set up your Digital ID and link it to the business through Relationship Authorisation Manager (RAM). If you need help with that prerequisite, see how to set up myID.

You can also ask a registered tax agent or BAS agent to register PAYG withholding for you.

Can you register for PAYG withholding when applying for an ABN?

Yes. The Australian Business Register allows eligible businesses to apply for PAYG withholding and other business registrations as part of an ABN application. If you have not obtained an ABN yet, see the separate guide to applying for an ABN.

If your ABN application is refused, the Australian Business Register states that the other registrations requested with that application will not progress.

PAYG withholding and GST are separate registrations. Hiring employees does not by itself mean that you must register for GST. If GST applies to your business, follow the separate GST registration process.

What if you need to withhold tax but do not need an ABN?

The ATO states that if you need to withhold tax but do not need an ABN, you must register for a PAYG withholding account. The ATO provides an Application to register a PAYG withholding account for this purpose.

The application asks when you expect to commence withholding. The nominated date is the day you first expect to withhold an amount from a payment. On the paper application, that date can be up to six months in the future, but the ATO states that it will not process the application until the date you nominate. Backdating a PAYG withholding registration can result in general interest charge applying to amounts withheld.

Which payments require withholding?

For an employer, salary and wage payments to employees are the most common PAYG withholding payments. PAYG withholding also commonly applies to payments to directors, businesses that do not quote an ABN and contractors who have requested a voluntary withholding agreement.

If you are a sole trader, money you take from your own business for yourself is a personal drawing, not a wage. A partnership's partners similarly do not treat their own drawings as employee wages for this purpose.

Correctly identifying employees and contractors matters because withholding obligations depend on the type of payment and working arrangement, not simply the label used by the business.

What should you set up before the first employee payday?

PAYG withholding registration is only one part of preparing payroll. Before paying a new employee, obtain the employee's tax declaration information. The information supplied through the tax file number declaration process helps determine how much tax you should withhold.

Use the ATO tax tables or tax withheld calculator to calculate the withholding amount that applies to each payment. If an employee does not provide their TFN, special withholding rules apply rather than simply treating the payment as tax-free.

You should also have Single Touch Payroll (STP) ready. The Australian Government's employer guidance states that employee payroll, tax and super information must be reported to the ATO through STP each time employees are paid, using STP-enabled payroll software or a service provider such as a tax agent.

How often do you pay PAYG withholding to the ATO?

Your PAYG withholding cycle depends on the amount you withhold. Current ATO rules classify a business withholding $25,000 or less per year as a small withholder, generally requiring quarterly notification and payment.

If annual withholding is more than $25,000 and up to $1 million, the business is a medium withholder and generally reports and pays monthly. A large withholder, generally where annual withholding exceeds $1 million, must pay electronically within the applicable 6-to-8-day timeframe after withholding events.

Your reporting arrangements can also interact with STP. The ATO reviews withholding cycles and can change a business's cycle based on its annual withholding amount.

Is PAYG withholding the same as PAYG instalments?

No. PAYG withholding concerns tax you withhold from payments to employees and certain other payees and remit to the ATO. PAYG instalments are generally prepayments towards your own or your entity's expected income tax liability.

This distinction is particularly important for sole traders. Personal drawings are not wages from which a sole trader withholds PAYG tax for themselves, although the sole trader may separately pay PAYG instalments towards their income tax.

What happens after you register?

Once registered, your obligations continue beyond withholding the correct amount from employee pay. You must report and pay withheld amounts to the ATO according to the applicable cycle and meet your STP obligations.

For payments reported and finalised through STP, you generally do not need to issue payment summaries or lodge a payment summary annual report for that information. Australian Government employer guidance also requires employers to check their STP information and make the applicable end-of-year finalisation declaration by 14 July each year.

PAYG withholding is also separate from other employer obligations. Depending on your circumstances, these can include superannuation, workers compensation, fringe benefits tax and state or territory payroll tax.

What should new employers avoid?

• Do not wait until after the first employee payday to register. Registration must be in place before the first payment subject to withholding.
• Do not assume an ABN automatically means you are registered for PAYG withholding. PAYG withholding is a separate tax registration, although you can request it during the ABN application.
• Do not register separately for every employee. The PAYG withholding registration applies to the business.
• Do not confuse PAYG withholding with PAYG instalments or GST registration.
• Do not treat PAYG registration as the end of payroll setup. You also need to calculate withholding correctly and meet STP reporting and other employer obligations.