There's a particular phone call I've had more than once. A business has had a good year, put on two or three more people, and their accountant mentions in passing that they should probably have registered for payroll tax about eight months ago. Nobody did anything wrong on purpose. They just measured the wrong number.
Payroll tax is a state tax, and in Victoria the trigger is a wage bill above $1 million a year. That sounds like a large business. It isn't. A trade or service business turning over somewhere between $2m and $3m, with eight or ten on the tools plus an admin person, is right in the zone — and the reason owners miss it is that the figure they're checking against the threshold is smaller than the figure the State Revenue Office is checking.
The numbers, plainly
From 1 July 2025, Victoria's payroll tax threshold is $1,000,000 a year, or $83,333 a month. The standard rate is 4.85%. Eligible regional Victorian employers pay 1.2125%.
The threshold works as a deduction, not a cliff. You pay 4.85% on the taxable wages above it, so a business with $1.4m of taxable wages pays roughly $19,400 — not 4.85% of the whole $1.4m. That's a real cost, but it's not the catastrophe some owners fear when they first hear the words.
The part that does bite comes later. If your annual wages exceed $3 million, the tax-free threshold starts reducing, and it phases out completely at $5 million. So the effective rate creeps up between those two points, and above $5m you're paying 4.85% from the first dollar. Worth knowing if your five-year plan involves getting there.
Two dates matter once you're registered: monthly returns are due by the seventh of the following month, and the annual reconciliation is due by 21 July each year.
The number you have to measure isn't your payroll
Here's where it goes wrong. "Wages" for payroll tax purposes is much broader than what your payroll software calls wages. The SRO's list includes regular pay, bonuses and commissions, leave payments, allowances such as meals, laundry and overtime, superannuation contributions including salary sacrifice, fringe benefits like a company car, termination payments such as unused leave, directors' fees even where the director doesn't work day to day, and shares or options given to employees as part of their pay.
Superannuation is the one that quietly does the damage. The super guarantee is 12% for 2026–27. A business paying $900,000 in salaries and wages — a number that feels comfortably under the line — is at $1,008,000 once super goes in. You are over. Not by much, and the tax on the excess is trivial, but the registration obligation is real and the SRO notes you can face penalties and interest for not registering when you should have.
Some things are excluded. Reimbursing an expense someone actually incurred isn't wages, and there are exemptions for particular payments and organisations. But the safe assumption is that if money or value moved from you to a worker, it counts until you've checked that it doesn't.
The subcontractor problem
This is the one that catches trade businesses hardest, because it runs against the intuition that a subbie with his own ABN is somebody else's payroll.
Payments to contractors are deemed wages in certain circumstances. The SRO's test runs in three steps. First, is the person actually an employee, in substance? If so, their pay is taxable wages and you stop there. Second, is the contract a "relevant contract" — broadly, a contract for the supply of services in the course of carrying on a business? Most are. Third, does an exclusion apply?
The exclusions are where the outcome is decided. The general ones include a contractor who provides services to you for 90 days or less in a financial year, a contractor who engages others to do the work, and a contract that's mainly for the supply of materials or equipment rather than labour. There are also specific carve-outs for owner-drivers, insurance agents and door-to-door sellers. And these provisions apply regardless of whether your subbie trades through a company, a trust, a partnership or as a sole trader — the structure doesn't decide it.
Think about what that means for a typical builder or electrical contractor. The subbie who does two big jobs a year for you and works for four other outfits is almost certainly excluded. The one who is effectively part of your crew — on your jobs most weeks, working alone, using your gear — may well not be, and the payments to him could be sitting inside your payroll tax base without anyone counting them.
Gold nugget. The 90-day exclusion is measured in days, not dollars, and almost nobody keeps the count. A subcontractor who invoices you $40,000 across 95 separate days can pull those payments into your taxable wages, while one who invoices $180,000 across 60 days is excluded on that test. The record you need is a per-contractor day count, built as the year goes — a column in your job management system, not an archaeology exercise the week the annual reconciliation is due. Start it now for the current financial year, because reconstructing it from invoices in eleven months' time is exactly the job nobody does properly, and it's the number the SRO will ask about if they ever look.
Grouping: the trap for the neatly structured
If you've been well advised on structure, you may have more than one entity. The trading company, a labour hire entity, a plant and equipment company, the partner's separate business that shares the office.
Payroll tax groups businesses that share ownership, control or staff, and where a group exists, the thresholds apply to the group's combined wages — one $1 million deduction shared across the lot, not one each. Related corporations are grouped where there's a holding and subsidiary relationship, and businesses can also be grouped where employees of one perform duties for another. The grouping rules are one of the few places where a structure built for asset protection can quietly cost you money, and it's worth a specific conversation with your accountant rather than an assumption.
Interstate wages matter too. If you pay wages in Victoria and elsewhere in Australia, you include all of them when working out your liability, and your Victorian threshold is adjusted proportionally. The same logic applies to a part-year of employing. If you work across the border, check the rules in that state as well — every state and territory has its own threshold and rate, and they are not the same.
What to do before you cross the line
Do the calculation on the number that actually counts, not the one in your payroll report. Take twelve months of gross wages, add superannuation, add allowances and fringe benefits and directors' fees, then add every subcontractor payment that isn't clearly excluded. If that total is anywhere north of about $900,000, you're close enough that it needs a proper answer.
Then decide what it means for your pricing. A business crossing the threshold is adding a cost that scales with every hire from that point on, and if your charge-out rates were built on a labour cost that didn't include payroll tax, your margin is about to compress without anybody noticing. That's the same failure mode I've written about in how to price your services so you actually make money and in what the minimum wage increase does to your wage bill — the price didn't move, so the cost came out of your margin.
And if the subcontractor analysis is making you uneasy, that's usually a signal about something bigger than tax. The question of who should be an employee and who genuinely shouldn't sits at the centre of scaling a trade business, and it's worth reading properly: subcontractors vs employees.
None of this is a reason not to grow. Payroll tax is the tax you pay for having built something. But it belongs in the plan before it arrives, not in a letter afterwards — and if you're on the path from a few hundred thousand to a few million, scaling from $500k to $2m is where the rest of that groundwork sits.
If you're not certain what your real wage base is, or what your rates would need to be once payroll tax lands on top of them, that's precisely the arithmetic we do in the Business Health Check — a fixed-price review of your numbers, your pricing and your cash cycle, with a written plan of what to fix first. Or start with the free five-minute scorecard to see where you stand.