Statutory deductions in Australia, explained
Reviewed by Mellow Editorial Team, HR & payroll content team
Statutory deductions in Australia are amounts you are legally required to withhold or contribute on behalf of your employees — they are not optional, and getting them wrong creates liability. The main ones are income tax (PAYG withholding), the Medicare levy, superannuation, and HECS/HELP repayments where applicable.
PAYG withholding: income tax
When you pay an employee, you withhold income tax from their gross pay and send it to the Australian Taxation Office (ATO) on their behalf. This is called Pay As You Go (PAYG) withholding.
Income tax in Australia is progressive, meaning the rate increases as income rises. You do not apply a flat rate — you use the ATO's tax tables or payroll software that references those tables. The correct amount depends on your employee's total annual earnings, their Tax File Number (TFN) declaration, and any claims they make (such as the tax-free threshold).
If an employee does not provide a TFN, you are required to withhold at the highest marginal rate. This protects you from underpaying the ATO.
PAYG amounts you withhold are reported to the ATO at each pay event through Single Touch Payroll, and the money itself is remitted on your standard lodgement cycle — typically monthly or quarterly depending on your withholder category.
The Medicare levy
The Medicare levy is 2% of taxable income. For most employees, it is already factored into the ATO's standard withholding tables, so if you are using up-to-date tax tables or compliant payroll software, it is being handled alongside income tax withholding automatically.
Some employees may be exempt from the levy — for example, certain temporary visa holders or low-income earners below the threshold. Employees claim this through their TFN declaration or a Medicare levy variation declaration. If an employee lodges one of these, your software or tables should be updated to reflect it.
As an employer, you do not pay the Medicare levy yourself — it comes out of the employee's gross pay.
Superannuation Guarantee
Superannuation is a contribution you make as the employer — it is on top of the employee's wages, not deducted from them, though it still needs to be understood as a statutory obligation alongside deductions.
From 2026, the Superannuation Guarantee (SG) rate is 12% of ordinary time earnings. Ordinary time earnings generally means the employee's regular pay for ordinary hours worked, including some allowances and loadings, but typically excluding overtime.
You must pay SG contributions into a complying superannuation fund — either the employee's chosen fund or, if they have not nominated one, their stapled super fund (which the ATO can look up for you). If no stapled fund exists, you use your default fund.
SG contributions must be paid at least quarterly, though paying more frequently reduces the risk of falling behind. Late or missing super contributions attract the Superannuation Guarantee Charge, which is calculated differently from ordinary SG and includes an interest component and administration fee — so prompt payment is both a compliance and a cost issue.
HECS/HELP repayments
If an employee has a HECS or HELP study debt, they repay it through the tax system, and as an employer you are responsible for withholding the additional amount.
Repayments are calculated on a banded scale — the repayment rate goes up as the employee's income rises. Employees disclose a study debt on their TFN declaration, and you then apply the relevant withholding rate from the ATO's study and training support loan tables rather than the standard income tax tables alone.
This additional withholding goes to the ATO along with their regular PAYG amount. It is not a separate remittance — it is simply a higher withholding rate applied at payroll. The ATO reconciles the employee's actual repayment obligation when they lodge their tax return.
Reporting through Single Touch Payroll
All of the above — PAYG withholding, the Medicare levy component, and HECS/HELP repayments — are reported to the ATO through Single Touch Payroll (STP) at each pay event. You do not wait until the end of the year to tell the ATO what you have withheld; the data goes in real time, pay by pay.
At the end of the financial year, you finalise your STP data by 14 July. This replaces the old payment summary process — once you finalise, employees can access their income statement directly through myGov. If you need to correct a prior pay event, STP allows you to lodge an amendment.
Keeping your payroll software up to date with current ATO tax tables is the most practical way to make sure all these deductions are calculated correctly as thresholds and rates change each year.
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