If you are about to pay your first employee, engage a contractor who does not have an ABN, or pay director fees or dividends, you are required to register for PAYG withholding before making those payments. This is a mandatory obligation under the Australian tax system, and getting it set up correctly from the start avoids penalties and administrative headaches.

This guide covers what PAYG withholding is, the critical difference between PAYG withholding and PAYG instalments (two things that are frequently confused), exactly how to register for PAYG withholding in Australia, what your obligations are once registered, and what else becomes mandatory when you hire your first employee.

What is PAYG Withholding?

PAYG withholding stands for Pay As You Go withholding. It is the system the Australian Taxation Office (ATO) uses to collect income tax in real time from payments made to employees and certain other payees.

As an employer or payer, you withhold a portion of each payment before it reaches the recipient, then forward those withheld amounts to the ATO. This means employees and other recipients pay their tax progressively throughout the year rather than in one lump sum at tax time. The amounts you withhold are calculated using the ATO's tax withholding tables or its online tax withheld calculator.

How to Register for PAYG Withholding in Australia: Step by Step

There are three ways to register for PAYG withholding in Australia depending on where you are in the business setup process.

Option 1: Register during your ABN application

If you are applying for a new ABN through the Australian Business Register (ABR), you can register for PAYG withholding at the same time during the application process. This is the simplest approach for new businesses.

Option 2: Register through ATO Online Services for Business

If your business already has an ABN, the registration process goes through ATO Online Services for Business, not the ABR. You need a myGovID set up and linked to your business before you can access this portal. Here are the steps.

1. Set up a myGovID on your personal device if you do not already have one. myGovID is the ATO's identity verification app, available for iOS and Android. You will need to verify your identity using your tax file number, driver licence, Medicare card, or passport.
2. Link your myGovID to your business ABN through the Relationship Authorisation Manager (RAM) at authorisationmanager.gov.au.
3. Log in to ATO Online Services for Business at business.gov.au or directly through the ATO website.
4. Go to Manage Tax Registrations and select Register for PAYG Withholding.
5. Confirm your business details and the date you need registration to take effect from.
6. The registration is typically processed immediately. A confirmation will appear in your ATO Online Services account.

Option 3: Register through a registered tax agent

If your business works with an accountant or registered tax agent, they can complete the PAYG withholding registration on your behalf through their professional portal. This is the most common method for businesses that already have an accounting relationship in place.

PAYG Withholding vs PAYG Instalments: What is the Difference?

This is the most common source of confusion around PAYG registration, and almost no resource explains it clearly. Here is the plain English version.

PAYG withholding is about tax you collect from others. When you pay an employee, you withhold part of their wage before paying them and send that withheld amount to the ATO. The employee gets a lower payment, the ATO gets the tax, and the employee's end-of-year tax return reflects what was withheld on their behalf. This applies to wages, salaries, director fees, and payments to contractors under withholding arrangements.

PAYG instalments are about tax you pay on your own income. If your business or investment income is above a certain threshold, the ATO requires you to make prepayments of the tax you will owe at year end. This is to avoid a large tax debt at lodgement time. The ATO either calculates an instalment rate for you or you can choose your own amount.

Both types of PAYG are reported on Business Activity Statements (BAS) but they are separate registrations that apply in different circumstances. You can be registered for one without the other. Many sole traders with no employees are on PAYG instalments but not PAYG withholding. Employers are typically registered for both.

Who Needs to Register for PAYG Withholding in Australia?

You are required to register for PAYG withholding if your business does any of the following.

• Pays wages or salaries to employees, including casual and part-time employees.
• Makes payments to contractors under a voluntary withholding agreement.
• Makes payments to workers or businesses that do not quote an Australian Business Number (ABN). In this situation, you are required to withhold 47 percent of the payment and remit it to the ATO.
• Pays director fees, dividends with franking credits below the company tax rate, or interest and royalties to foreign residents.
• Makes payments under a labour hire arrangement.

Who does not need to register for PAYG withholding?

Sole traders with no employees who make all payments to contractors who quote their ABN do not need to register for PAYG withholding. If you are a sole trader with no staff and you only engage contractors who supply their ABN, PAYG withholding registration is not required. However, if you hire even one employee, registration is mandatory before the first wage payment.

Single Touch Payroll: What It Means for Your PAYG Withholding Obligations

Single Touch Payroll (STP) is mandatory for all Australian employers and fundamentally changed how PAYG withholding is reported. Understanding STP is essential for any new employer.

What STP replaced

Before STP became mandatory, employers were required to issue paper payment summaries to employees at the end of the financial year and lodge an annual PAYG withholding payment summary annual report with the ATO. Both of those obligations have been replaced.

Under STP, employers report each pay event directly to the ATO through STP-enabled payroll software at the time of each pay run. There are no more payment summaries. Employees view their income statement through myGov and see their year-to-date wages, tax withheld, and superannuation in real time. At the end of the financial year, employers finalise their STP data through the software rather than lodging a separate report.

When STP became mandatory

STP Phase 1 became mandatory for all employers from 1 July 2020. STP Phase 2, which expanded the data employers report to include additional employment and salary information, was mandated from 1 January 2022 with transition arrangements for most businesses extending into 2023. If you are setting up payroll for the first time in 2025, your payroll software should be STP Phase 2 compliant.

Choosing STP-enabled payroll software

You cannot manually report to the ATO under STP. You need STP-enabled payroll software. Common options used by Australian small businesses include Xero, MYOB, QuickBooks, and KeyPay. The ATO also lists free or low-cost STP options for businesses with four or fewer employees on its website. Your payroll software handles the STP reporting automatically each time you process a pay run.

From 1 July 2026, updated PAYG withholding tax tables apply as the second phase of the Stage 3 tax cuts takes effect, reducing the 16 percent rate to 15 percent on taxable income between $18,201 and $45,000. Most payroll software updates these tables automatically. If you use manual payroll, download the current ATO withholding schedules before processing your first pay run of the new financial year.

Your Obligations After Registering for PAYG Withholding

Once your PAYG withholding registration is in place, the following are your ongoing obligations as an employer.

Withhold the correct amount

The amount you withhold from each payment depends on the employee's taxable earnings, their Tax File Number declaration form, and any withholding variation they have requested. Use the ATO's PAYG withholding tax tables or the ATO tax withheld calculator to determine the correct withholding amount for each pay period. Withholding the wrong amount, whether too much or too little, creates problems for both you and the employee at tax time.

Report and pay through your BAS (and what changed in 2026)

How PAYG withholding is reported and paid depends on your withholding cycle. Small withholders (annual withholding under $25,000) report and pay quarterly through their BAS. Medium withholders (between $25,001 and $1 million) report and pay monthly. Large withholders (over $1 million) pay electronically within six to eight days of each withholding event and receive a unique Payment Reference Number (PRN) ending in 70 from the ATO.

From 1 July 2026, the ATO changed how PAYG withholding is reported for businesses using Single Touch Payroll. If you report through STP, you no longer report PAYG withholding amounts separately on your Activity Statement. The ATO receives your withholding data directly through each STP pay event. Your new payment cycle and PRN are notified by the ATO in April each year if your annual withholding has crossed a threshold. If you received an ATO letter in April 2026 about a cycle change, update your payroll software before 1 July 2026 to align with the new due dates.

Report each pay event via STP

As described above, each pay run is reported to the ATO automatically through your STP-enabled payroll software. Employees can view their income statement in myGov at any time. At the end of the financial year, you finalise your STP data to confirm the year-to-date figures are correct.

Obtain a Tax File Number declaration from each employee

Before or when you start paying a new employee, they must provide a completed Tax File Number (TFN) declaration form. If they do not provide one within 28 days, you are required to withhold at the top marginal rate of 47 percent from their wages until they do. Keep TFN declarations for the duration of employment plus five years.

Related: 5 tips for hiring your first employee

Pay superannuation for each eligible employee

Alongside PAYG withholding, every employer must pay superannuation contributions for eligible employees. The Superannuation Guarantee (SG) rate is 12 percent of ordinary time earnings from 1 July 2025. This is a separate obligation from PAYG withholding but applies at the same time to the same employees.

Payday Super: new obligation from 1 July 2026

From 1 July 2026, employers are required to pay superannuation contributions at the same time as wages rather than quarterly. This is called Payday Super. Under Payday Super, each time you run payroll and withhold PAYG amounts, you also need to remit the corresponding superannuation contribution to the employee's nominated fund at the same time or very close to it.

STP captures superannuation liabilities from 1 July 2026 to support ATO enforcement of Payday Super. This means the ATO can see in real time whether super has been paid alongside each wage payment. Late or missing super payments will be visible to the ATO immediately through the STP data. Employers using STP-enabled payroll software should confirm their software is updated for Payday Super compliance before 1 July 2026.

What Happens If You Do Not Register for PAYG Withholding?

Not registering for PAYG withholding when you are required to is not a grey area. The ATO takes employer tax obligations seriously and the consequences of non-compliance are financial.

• You become personally liable for the amounts you should have withheld, even if you have already paid the full gross amount to the employee or contractor. The liability for the unremitted tax does not transfer to the payee.
• Administrative penalties apply for failure to withhold and failure to lodge activity statements on time. Penalty amounts vary based on the size of the business and the nature of the non-compliance.
• Interest charges accrue on unpaid amounts from the due date.
• Failure to withhold from payments made to contractors without an ABN means you are liable for the 47 percent that should have been withheld on every such payment made.

The ATO does have powers to remit penalties in genuine cases of honest mistake or where a business has taken reasonable care, but this is not certain and does not eliminate the underlying tax liability.

From 1 July 2025, interest charges imposed by the ATO for late lodgement and unpaid tax are no longer tax deductible. This applies to the General Interest Charge (GIC) and Shortfall Interest Charge (SIC). Under previous rules, ATO interest charges could be claimed as a business expense. That deduction no longer exists. The practical effect is that carrying an unpaid PAYG withholding debt costs more than it did before July 2025, making timely registration and payment more important than ever.

Becoming an Employer: The Insurance Obligations That Come Alongside PAYG

PAYG withholding registration is not the only obligation that kicks in when you hire your first employee. Two insurance obligations become mandatory at the same point.

Workers compensation insurance

Workers compensation insurance is legally required for all employers in every Australian state and territory. It is not optional and cannot be deferred. You must hold a current workers compensation policy before your first employee commences work. Each state and territory has its own scheme with different requirements, premium structures, and insurer arrangements. Operating without workers compensation insurance while employing staff is a serious legal breach with significant penalties.

Public liability insurance

While not legally mandated in the same way as workers compensation, public liability insurance is a practical necessity for any business that employs staff and operates from premises or on client sites. It may help protect your business against liability if someone is injured or property is damaged in connection with your business activities, subject to policy terms and conditions. Most commercial landlords and many client contracts require it as a condition of engagement.

upcover arranges business insurance for employers and small businesses across Australia, including public liability insurance and access to workers compensation products through its partner network. Getting your business insurance in place at the same time as your PAYG withholding registration means you are compliant across all your employer obligations from day one.

About upcover

upcover is a digital-first insurance broker helping Australian small businesses and employers get the right insurance without the paperwork or phone queues. upcover arranges business insurance for sole traders, small businesses, and employers across 1,000+ industries.

• 70,000+ businesses covered across Australia.
• 4.9/5 customer rating.
• Instant Certificate of Currency on policy confirmation.

upcover is a Corporate Authorised Representative (CAR 1299211) of Experience Insurance Services Pty Ltd ABN 41 657 596 506, AFSL 539078.

Frequently Asked Questions

How do I register for PAYG withholding in Australia?

New ABN: register during the ABN application through the Australian Business Register. Existing ABN: register through ATO Online Services for Business using your myGovID, linked to your ABN via the Relationship Authorisation Manager (RAM). Your registered tax agent or accountant can also complete the registration on your behalf.

When do I need to register for PAYG withholding?

Before your first payment that requires withholding: wages, director fees, or payments to contractors without an ABN. Registration must be in place before the payment, not after. Paying wages without being registered creates a tax liability for the amounts that should have been withheld.

What is PAYG tax Australia registration?

PAYG tax registration covers two separate obligations: PAYG withholding (collecting tax from employee wages and certain contractor payments) and PAYG instalments (prepaying your own business income tax). They are different registrations. Most employers need PAYG withholding. PAYG instalments are generally initiated by the ATO based on your previous year's income.

What happens if I do not register for PAYG withholding?

You become personally liable for the amounts that should have been withheld, even if you already paid the full gross amount to the employee. Administrative penalties and interest charges apply. The ATO liability does not transfer to the payee. From 1 July 2025, ATO interest charges are also no longer tax deductible, making non-compliance more costly.

What is registering for PAYG withholding in Australia?

Formally registering with the ATO to collect and remit income tax from employee wages and certain other payments. Once registered, you withhold tax each pay run, report through STP-enabled payroll software, and pay the withheld amounts through your BAS. Registration is free and held against your ABN.

What is a PAYG withholding registration number?

There is no separate PAYG withholding registration number. PAYG withholding is registered against your ABN, which is the identifier used in all STP lodgements and BAS reporting. No separate certificate or number is issued.

Do I need insurance when I register as an employer?

Yes. Workers compensation insurance is legally mandatory in every Australian state and territory before your first employee starts work. Public liability insurance is standard practice and required by most commercial landlords and client contracts. upcover arranges both for small businesses across Australia. Check the workers compensation requirements for your specific state before your employee's start date.

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_{The information in this article about PAYG withholding registration, tax obligations, and Single Touch Payroll is general in nature and drawn from publicly available ATO guidance. It does not constitute tax, financial, or legal advice. Tax obligations are complex and depend on individual business circumstances. Always consult a registered tax agent or accountant for advice specific to your situation. ATO rules and thresholds are subject to change. Check the ATO website for the most current information before taking action. The insurance information in this article has been prepared without taking into account your individual needs, objectives or financial situation. It should not be relied upon as personal advice. All insurance products arranged through upcover are subject to the terms, conditions, limits and exclusions of the relevant policy wording and Product Disclosure Statement. Before deciding whether a particular insurance product is right for you, please read the relevant PDS and consider your personal circumstances. upcover Pty Ltd ABN 17 628 197 437 is a Corporate Authorised Representative (CAR 1299211) of Experience Insurance Services Pty Ltd ABN 41 657 596 506, AFSL 539078. upcover arranges insurance products with selected insurers and underwriters and does not compare all general insurers or insurance products available in the market.}