What Counts as Wages for Payroll Tax?

Taxable wages are not only salaries. A payment reaches the payroll tax base by one of three routes: it is paid to an employee, it is paid to a contractor under a relevant contract, or it is a payment to a practitioner that a revenue office treats as wages even though an ABN was issued. For a medical practice the third route is the one that creates the exposure, because it is the one an invoice does not disclose.

The three routes into the wage base

• Employee wages. Salaries, bonuses, commissions, director's fees, employer superannuation and fringe benefits. This is the ordinary base and the one every employer expects.
• Contractor payments under a relevant contract. Certain payments for labour-only services are deemed to be wages even though the recipient is not an employee. Our contractors and relevant contracts guide sets out the provisions and the exemptions.
• Practitioner payments treated as wages. Where a practice pays practitioners through a Service Facility Agreement, the revenue offices treat the payment as wages. This follows Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue, and it is the reason an ABN does not change the answer. The contractor doctors guide works through it.

What is included

• Gross salaries and wages: all payments to employees before tax.
• Bonuses and commissions: performance payments.
• Director's fees: fees paid to directors.
• Employer superannuation contributions: the employer's contribution, not the employee's salary sacrifice. Superannuation is liable in full.
• Fringe benefits: included at their grossed-up taxable value.
• Deemed contractor and practitioner payments: as set out in the three routes above.

Superannuation and fringe benefits

Two inclusions catch practices out, because neither looks like a wage when it is paid.

Superannuation. Employer contributions are liable in full, including the Superannuation Guarantee (12.0% for FY 2026/27) and any additional employer contributions. Salary sacrifice amounts are included in taxable wages as well, so sacrificing salary does not remove the amount from the base.

Fringe benefits. These are included at their grossed-up taxable value, using the Type 2 gross-up factor (1.8868). The factor is indexed annually, so check the current figure against the ATO's published rates before relying on it. A car benefit or a novated lease therefore adds to payroll tax as well as to fringe benefits tax.

Exempt wages

Exemptions vary by jurisdiction. The categories below are the common ones, but which of them applies, and on what conditions, is set by each jurisdiction's own legislation.

• Apprentice and trainee wages: the Northern Territory exempts these from 1 July 2025; Queensland operates a rebate extended to 30 June 2027. Other jurisdictions vary.
• Charitable and religious body exemptions: wages paid by organisations with charitable or religious status.
• Parental leave, volunteer service, defence and emergency service leave: generally exempt.
• Commonwealth government wages in the ACT: exempt where the employer is the Commonwealth.

Note what is not on this list: there is no general exemption for payments to practitioners. The GP-scoped relief that exists in some jurisdictions reduces the tax on those payments, but it does not remove them from taxable wages, and it does not apply to dentists, allied health practitioners, psychologists or non-GP specialists in any jurisdiction.

Not wages at all, which is different from exempt

Exempt wages are wages that the legislation takes out of the base. There is a separate category that never enters the base in the first place, and treating the two as one leads a practice either to claim an exemption it does not have, or to miss a liability it does.

• The GST component of a payment. Taxable wages are GST-exclusive, so where an invoice includes GST the 1/11th is not part of the wage base. This matters for a service fee a practice charges a practitioner, because the administrative service fee is a taxable supply even though the clinical services themselves are GST-free.
• Payments ancillary to the supply of goods. The relevant contract provisions reach payments for labour. A payment genuinely ancillary to a supply of goods falls outside them. It is one of the exemptions the medical practice worksheet asks you to answer rather than assume, because the answer changes the deemed wage.
• Dividends, trust distributions and drawings. A return on an ownership interest is not a payment for labour. What decides the question is the character of the payment, not the fact that the recipient also works in the practice.
• Reimbursement of genuine business expenses. Repaying a practitioner for a cost the practice incurred does not create a wage, provided the payment is a reimbursement rather than a roundabout way of paying for work done.

Which jurisdiction's wage base

Establishing that a payment is taxable wages answers half the question. The other half is which jurisdiction taxes it, and the answer is not always the state the practice is in or the state the practitioner works in.

Where a practice pays wages in more than one jurisdiction, each state's share of the wage bill is worked out from the wages paid in that state, and the threshold machinery is applied to that share. The tests that decide whether a threshold is reduced, or whether a surcharge applies, are generally applied to the practice's Australia-wide wages rather than to the state's share. A practice with wages in two states therefore has two liabilities, each computed on a partial wage base but tested against the national total.

The multi-state apportionment guide works through how the shares are calculated and where those tests bite.

Three wage bases, not one

Payroll tax is not the only obligation calculated on the wages a practice pays, and the bases are not the same. Superannuation is calculated on ordinary time earnings. Payroll tax is calculated on taxable wages. Workers compensation is calculated on a remuneration base set by each state's scheme. A payment can sit inside one and outside another.

The practical consequence is that a figure correct for one obligation is not automatically correct for another. Superannuation is liable in full for payroll tax, but not every payment that is payroll tax wages is ordinary time earnings, and a practitioner who is an employee for superannuation purposes is not necessarily caught by the relevant contract provisions. Check each base against its own definition rather than reusing a number that was right for a different one.

When a wage becomes taxable

Payroll tax liability arises on wages paid or payable in a period, not on the period in which the work was performed. A bonus declared in June and paid in July falls in the July period, and so does a payment made after year end for work done before it. Timing therefore decides which period a wage lands in, and for a practice whose wages sit near a threshold or inside a taper, it can change the liability itself.

The same principle applies as superannuation and fringe benefits enter the wage base: they are included in the period in which they are paid or provided. A fringe benefit provided in one year and reported in another can move a payroll tax figure for that reason alone.

Verify your figures

Use our calculator to see how a wage base converts into a liability, and the rate table for verified thresholds and rates. Whether any relief applies to your practice depends on the jurisdiction and the practitioner type, and the medical practice section sets that out state by state.