Who must withhold PAYG from employee and contractor payments?
The applicability test for Withhold PAYG from employee and contractor payments (ATO), computed across 35 industries, 9 business structures and 6 size bands.
Short answer: Some businesses
Applies when the business has employees.
What the obligation is
Employers must withhold tax from wages, certain contractor payments + report via STP / BAS.
PAYG withholding obligations apply to wages (per TFN declaration), contractor payments where the contractor has not quoted ABN (47%), and various other payments (e.g. directors' fees, royalties). Withheld amounts reported via STP + remitted to ATO via BAS.
The applicability test
Applies when the business has employees.
How the regulator frames it: Employers + payers of withholding-attracting payments.
What triggers it: Making a payment subject to PAYG withholding.
Jurisdiction: Commonwealth law, so the test is the same in every state and territory.
Which industries are in or out
Outcome across the 35 industries Rules Mate maps (35 of 35: depends on size or structure).
The answer is the same in every industry: depends on size or structure. Industry does not change who must comply.
Business structure and size
Structure does not change the answer across all industries: for every structure the answer is "depends on size or structure".
| Size band | Answer across all industries, any structure |
|---|---|
| No employees (turnover $100K–$1M) | No |
| 1–5 employees (turnover $100K–$1M) | Yes |
| 6–19 employees (turnover $1M–$3M) | Yes |
| 20–99 employees (turnover $3M–$10M) | Yes |
| 100–499 employees (turnover $10M–$100M) | Yes |
| 500+ employees (turnover $100M–$1B) | Yes |
Worked examples
Each line is one run of the Rules Mate applicability engine for a single business profile, with the reason the engine gives:
- Pty Ltd company in real estate agents with 6–19 employees, turnover $1M–$3M: applies. You have employees (6–19)
- Pty Ltd company in real estate agents with no employees, turnover $100K–$1M: does not apply. Requires employees.
What you must do, and when
- When due
- Withhold each pay event; remit via BAS.
- Frequency
- Ongoing
- Evidence to keep
- TFN declarations; STP submissions; BAS withholding payments.
- Status
- Current
- Priority
- Critical
Penalty for not complying
Maximum penalty: Failure-to-withhold penalty 75% of unpaid; director penalty notices for unremitted withholding.
Audit or assurance level
Rules Mate has not yet classified the audit or assurance level for this obligation. Any audit, review or certification requirement is set by the regulator source listed below.
Where it sits in the corpus
Rules Mate tracks 37 published obligations tagged "tax", 6 of them rated critical. For a professional services Pty Ltd company with 6–19 employees operating in every state, 7 of those apply outright. This obligation is rated critical priority, and is an ongoing duty.
Regulator, legislation and tools
Regulated by Australian Taxation Office.
ATO: Federal tax administrator covering income tax, GST, PAYG, FBT, superannuation guarantee, STP, and self-managed super funds. Also administers the Director ID regime via ABRS.
TAA: General tax administration — PAYG withholding (Sch 1 Pt 2-5), STP, Director Penalty Notice regime (Sch 1 Subdiv 269-B), assessment + objection process, penalties + general interest charge.
Free tools that help with this obligation:
Questions
- Who must withhold PAYG from employee and contractor payments?
- Applies when the business has employees.
- Do sole traders need to withhold PAYG from employee and contractor payments?
- Depends on size or structure. Across every industry and every size band, the engine's answer for a sole trader is: depends on size or structure.
- Do businesses with 1–5 employees need to withhold PAYG from employee and contractor payments?
- Yes (1–5 employees, turnover $100K–$1M).
- When is "Withhold PAYG from employee and contractor payments" due?
- Withhold each pay event; remit via BAS.
Related
Sources
Computed by the Rules Mate applicability engine from the published obligation corpus; facts last checked 3 October 2026. Rules Mate is not a law firm and this is general information, not legal advice. Confirm your position with the regulator source or a qualified adviser before acting.