Employer social-insurance costs in Australia
Reviewed by Mellow Editorial Team, HR & payroll content team
Employers in Australia do not pay a broad social-insurance tax in the way many other countries do. The main statutory cost on top of wages is the Superannuation Guarantee, currently 12% of ordinary time earnings, along with payroll tax obligations at the state level.
The Superannuation Guarantee is your primary on-cost
From 2026, the Superannuation Guarantee (SG) sits at 12% of an employee's ordinary time earnings (OTE). You pay this directly to the employee's nominated complying superannuation fund — not to a government agency. If an employee does not nominate a fund, you pay into their stapled super fund (a fund already linked to them from previous employment), or into a default fund if no stapled fund exists.
OTE includes regular wages, shift loadings and most allowances, but generally excludes overtime. Getting the base right matters: undercalculating OTE is the most common SG compliance mistake.
Super must be paid at least quarterly, though many payroll systems pay it more frequently. Late or underpaid super triggers the Superannuation Guarantee Charge, which is not tax-deductible and includes interest and an administration fee — making it significantly more expensive than simply paying on time.
Payroll tax: a state and territory obligation
Payroll tax is levied by each state and territory on wages above a threshold. Rates and thresholds differ across jurisdictions, so an employer in New South Wales faces different numbers than one in Victoria or Queensland. Because the verified statutory figures provided here do not include state payroll tax rates, you should check directly with your relevant state revenue office — Revenue NSW, the State Revenue Office of Victoria, and so on.
The broad mechanics are consistent nationwide: once your Australian wages exceed the relevant threshold, you register, lodge monthly estimates and reconcile annually. Contractors can be caught in some circumstances, depending on the nature of the arrangement, so do not assume payroll tax applies only to employees.
PAYG withholding: collecting tax on the employee's behalf
Pay As You Go (PAYG) withholding is not a cost to the employer — you are collecting income tax on behalf of the ATO and remitting it. Income tax is progressive, and the amount you withhold depends on each employee's tax file number declaration, whether they claim the tax-free threshold, and any other adjustments such as a HECS/HELP debt.
Employees with a study debt under the HECS/HELP scheme have additional amounts withheld on a banded scale, calculated on top of their regular PAYG withholding. The ATO's tax withheld calculators update each financial year; using outdated tables creates under- or over-withholding, both of which cause problems at the employee's tax return.
The Medicare levy of 2% is factored into the standard PAYG withholding tables automatically. You do not calculate or remit it separately — it is embedded in the withholding rates the ATO provides.
Single Touch Payroll keeps you compliant in real time
All of this is reported through Single Touch Payroll (STP). Each time you run a pay event — whether weekly, fortnightly or monthly — your payroll software sends a report to the ATO containing salary and wages, PAYG withholding and super liability information. There is no end-of-year payment summary to distribute to employees; the ATO pre-fills their tax returns directly from STP data.
You are required to finalise your STP data for each employee by 14 July after the end of each financial year. Missing that date can delay employees' tax returns and attract ATO attention. If you use a payroll platform that handles STP reporting automatically, the mechanics happen at each pay run, but you still need to confirm the finalisation step in July.
Workers compensation insurance
Workers compensation is compulsory in every state and territory, funded through premiums paid to either a government insurer or an approved private insurer, depending on your jurisdiction. Premiums are calculated on your industry classification and remuneration bill. This is not a payroll tax, but it is a genuine statutory on-cost that sits alongside super and payroll tax when you are budgeting the true cost of an employee.
What this means for your cost modelling
When estimating what an employee actually costs, the headline salary is only the starting point. Add 12% super on OTE, estimate your payroll tax exposure once you cross the relevant threshold in your state, factor in workers compensation premiums, and account for entitlements under the National Employment Standards — including four weeks of annual leave per year and redundancy pay scaled to years of service. These obligations do not disappear because they are less visible than a direct social-insurance tax; they are real costs that need to be in your budget from day one.
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