Payroll tax is the tax growing businesses never see coming. You hire a few more people, your wage bill creeps up, and one day you cross a threshold you didn’t know existed, and suddenly the State Revenue Office wants a monthly return and a cheque.

Want a quick estimate first? Try our Victorian payroll tax calculator to work out your liability from your annual Victorian wages.

It is a state tax, not a federal one, so it works differently to income tax and GST, and the rules change from state to state. If you employ people in Victoria, this is the guide to knowing where you stand before a surprise assessment finds you.

Below we cover what payroll tax is, the Victorian threshold and rate for 2025-26, what counts as wages, the grouping rules that catch business owners out, and how to plan for it as you grow.

What is payroll tax?

Payroll tax is a state and territory tax on the wages an employer pays, once total wages exceed a tax-free threshold. It is self-assessed: the onus is on you to register, lodge, and pay, not on the government to chase you.

The key thing to understand is that it is levied on your total wage bill above the threshold, not just the amount over it in the way income tax brackets work. Once you are in the system, it applies to your whole taxable wages figure after the deduction. That is why crossing the threshold is a genuine cost step, and why it deserves planning rather than a shrug.

The Victorian payroll tax threshold and rate for 2025-26

For the 2025-26 financial year in Victoria, the numbers that matter are:

• Tax-free threshold: $1,000,000 in annual Australian taxable wages (equivalent to $83,333 per month). This rose from $900,000 on 1 July 2025.
• Metropolitan rate: 4.85% on wages above the threshold.
• Regional employer rate: 1.2125% for eligible regional Victorian businesses.

There is also a phase-out to be aware of. Once your Australian wages exceed $3 million, the tax-free threshold begins to reduce, and it disappears entirely once wages reach $5 million. Above $5 million, payroll tax applies to your full wage bill with no deduction. You can confirm the current figures on the State Revenue Office Victoria website.

A quick illustration: a metropolitan employer with $1.4 million in annual wages pays 4.85% on the $400,000 above the threshold, roughly $19,400 for the year. It is a real number, and it grows quickly as you add staff.

What counts as wages for payroll tax?

“Wages” is broader than the salaries in your payroll software. In Victoria, taxable wages generally include:

• Salaries, wages, commissions, bonuses and allowances
• Superannuation contributions
• The grossed-up value of fringe benefits
• Certain payments to contractors caught by the contractor provisions
• Termination payments and some directors’ fees

That contractor point is a common trap. Paying someone as a contractor does not automatically keep them out of your payroll tax calculation: the relevant contract provisions can pull those payments back in. If you rely heavily on subcontractors, this is worth reviewing carefully. Our guide on super obligations for contractors covers the related question of when contractors are treated like employees.

Grouping: the rule that catches business owners out

This is the single most misunderstood part of payroll tax. If you control more than one business, the grouping rules can force you to add all the businesses’ wages together and apply a single threshold across the whole group, not one threshold per entity.

Businesses can be grouped where there is common ownership or control, shared employees, or one entity has a controlling interest in another. For owners who run several companies or trusts, a common set-up for tax and asset-protection reasons, this can mean you cross the payroll tax threshold far earlier than you expected, because the group is assessed as one.

Grouping is precisely where your business structure and your payroll tax position collide, which is why the two should be planned together. If you are running multiple entities, our overview of business structures in Australia is a useful companion read.

Surcharges for larger employers

Victoria applies additional levies to larger employers on top of the base rate. Businesses with large national payrolls can be subject to the mental health and wellbeing surcharge and a temporary levy introduced to repay pandemic-era debt. These are aimed at bigger employers, but if your group’s national wages are climbing into the eight figures, they need to be on your radar and in your forecasts. The current thresholds and rates are published by the State Revenue Office.

How to plan for payroll tax as you grow

Payroll tax rewards the businesses that see it coming. A few practical steps:

• Forecast your wage bill. Know roughly when you will cross $1 million so it is a planned event, not a shock.
• Build it into your pricing. Once you are over the threshold, every new hire carries an extra 4.85% on their wages, so factor that into quotes and margins.
• Check your grouping position early. If you run multiple entities, confirm whether they are grouped before you assume separate thresholds.
• Register on time. You must register once you go over the monthly threshold, and late registration can mean back-payments and penalties.

This is the kind of forward-looking work a good advisor should be doing alongside your income tax planning. If payroll tax has crept up on you, or you can see it coming, it is far cheaper to plan for it now than to unwind a surprise assessment later.

Frequently Asked Questions

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