How to Set Up PAYG Withholding in Australia: The Startup Guide for Founders

Hiring your first team member is a big milestone — but if you skip the tax setup, it can turn into a costly mess fast. The ATO doesn’t take kindly to missed withholding.

Just ask EatClub, the Aussie food tech startup that rapidly expanded its team in 2019.

Early growth came with fast hiring — but delays in setting up proper PAYG systems triggered compliance issues that stalled funding rounds and forced internal cleanup at the worst time.

If you’re paying employees or contractors, setting up PAYG withholding isn’t optional — it’s a legal obligation. Here’s how to register and stay compliant, step by step.

What Is PAYG Withholding?

PAYG withholding is the system that makes you withhold tax from your employees’ pay and send it to the ATO (Australian Taxation Office).

You’re not paying their tax for them — you’re acting as the go-between.

Here’s what this includes:

• Salaries and wage

• Contractor payments (in some cases)

• Directors' fees

• Payments to workers under a voluntary agreement

Each of these requires you to withhold the correct amount of tax and report it to the ATO.

Mentor Tip: If you’re paying someone regularly for their labour, chances are you’ll need to withhold. Don’t guess — check.

Why It Matters to Setup PAYG Withholding

Here’s why I recommend every business owner get this right from day one:

It’s a Legal Requirement

If you’re hiring, you’re likely legally required to register for PAYG withholding. Failure to do so = fines and audits.

It Builds Trust with the ATO

Getting your tax setup right early shows you’re serious. It reduces scrutiny and gives you breathing space to grow.

It’s Critical for Payroll Compliance

Super, payslips, STP (Single Touch Payroll) — they all rely on your PAYG setup being correct. There are numerous software system out there that assist in automating this process for you.

It Protects Your Business Reputation

Late payments, incorrect withholding — these damage team trust and create unnecessary drama.

What You Need Before You Start

Before you register, make sure you have:

• An active ABN

• Details of employees or contractors

• Business contact details (address, phone, email)

• Access to the ATO’s Business Portal (or your tax agent does)

Mentor Tip: Get this ready first. Having it all on hand makes registration much faster — and reduces the chance of mistakes.

How to Register for PAYG Withholding (ATO):

Step-by-Step

Step 1: Register for PAYG Withholding

You can register:

• Online via the ATO Business Portal

• Through your business tax agent

• By phone with the ATO (13 28 66)

Mentor Tip: Most startups do it online — it’s fast, straightforward, and confirms your registration instantly.

Step 2: Determine Who You Must Withhold For

(Employees, Contractors, Directors)

This includes:

• Employees on your payroll

• Some contractors (depending on agreements)

• Company directors (if you pay director fees)

Warning: Even if someone has an ABN, you may still be required to withhold. Check each case.

Step 3: Calculate & Withhold

(Tax Tables or STP Software)

Use the ATO’s tax tables or a payroll software (e.g. Xero, MYOB) to calculate exact amounts.

Use STP-compliant software — the ATO requires it for reporting.

Step 4: Report via STP & Pay ATO (Monthly/Quarterly)

• Report through Single Touch Payroll (STP) with each pay run

• Pay to the ATO either monthly or quarterly (depending on your business)

Mentor Tip: Set a reminder in your calendar — PAYG payment dates are strict.

Step 5: Keep Records & TFN Declarations

• Payment summaries

• TFN declarations

• Employee tax and super records

Mentor Tip: These records aren’t just for the ATO — they help you when applying for loans, grants, or hiring new staff.

What are the Withholding Frequency & Due Dates (Monthly vs Quarterly)

Your PAYG payment cycle depends on how much you withhold. The ATO will set (and update) your cycle, but here’s the quick logic:

• Quarterly (small withholder): generally when your total PAYG withholding is ≤ $25k per year.

  • Due dates (BAS):

    • Q1 (Jul–Sep): 28 Oct

    • Q2 (Oct–Dec): 28 Feb

    • Q3 (Jan–Mar): 28 Apr

    • Q4 (Apr–Jun): 28 Jul

• Monthly (medium withholder): generally $25k–$1m per year.

  • Due date (IAS/BAS): 21st of the following month.

• Large withholder: generally > $1m per year — special/twice-weekly schedules apply.

Mentor Tip: Your STP reporting still happens every pay run. The cycle above is about when you pay the withheld amounts to the ATO. Always check your ATO Online account for your assigned cycle and exact due dates (agents may have different concessions).

What are End-of-Year STP Finalisation

(Income Statements)

At year-end you don’t issue payment summaries anymore (STP replaces them). You finalise your payroll in STP so your team sees “Tax ready” income statements in myGov.

What to do:

1. Reconcile YTD in your payroll software (wages, PAYG, allowances, leave, termination payments).

2. Map STP Phase 2 fields correctly (earnings categories, allowances, child support, etc.).

3. Fix variances (e.g., super amounts, back-pay, rounding).

4. Make the Finalisation Declaration in your STP-enabled software for each employee.

5. Notify employees when statements are “Tax ready.”

Timing (typical):

• Most employers aim to finalise by 14 July.

• Some concessions (e.g., closely held payees) may allow later dates.

Mentor Tip: Keep evidence - reconciliation reports, amendment notes, and your finalisation confirmation.

Employee vs Contractor: What the ATO Looks At

Labels don’t decide—substance of the arrangement does. The ATO weighs these factors:

• Control: Who decides how/when/where the work is done?

• Ability to delegate: Can they subcontract the work, or must they do it personally?

• Result vs time: Paid for a result (fixed price) or hours worked (ongoing)?

• Tools & expenses: Who supplies equipment, pays expenses, and carries business costs?

• Risk & insurance: Who bears commercial risk and holds public/professional insurance?

• Integration: Are they part of your organisation & processes (like an employee)?

• Entitlements: Leave, super, direction—do these look like employment?

Quick rules of thumb:

• If a worker doesn’t quote an ABN, you may need to withhold.

• Voluntary agreements with some contractors bring them into PAYG withholding.

• Sham contracting (treating employees as contractors) is risky—assess each engagement.

Mentor Tip: Document your assessment (one page). It helps if you’re ever reviewed.

What It Costs and How Long It Takes

Here’s what to budget for:

• Setup cost: Free via the ATO

• Payroll software: $10–$60/month depending on features

• Bookkeeper/accountant support (if needed): $150–$500 for initial setup

Timeframe:

• Online registration: 15–30 minutes

• Full setup with software: 1–2 days (including learning curve)

Money-Saving Tip: Many software providers offer free trials — use this time to set up, test, and learn before paying. Make sure you do your research and check the reviews people have left about the software you are leaning towards using.

Common Mistakes Business Owners Make

Hiring before registering 

If you’re paying staff and haven’t set up PAYG, you’re already non-compliant. The fines aren’t “maybe” — they’re guaranteed.

Assuming contractors are off the hook 

Just because they have an ABN doesn’t mean you're safe. The ATO looks at how they work — not what you call them.

Missing deadlines 

The ATO won’t send reminders. They send penalties. One late report can spiral into a pile of fees.

Using spreadsheets to track 

Manual tracking = manual errors. You’re not saving time — you’re setting yourself up for mistakes that cost way more later.

What to Do Right Now

✅ Download: Setup Checklists

Resource tools for business owners who want to register, report, and stay compliant — without confusion. Simple, practical, and built for Australian businesses. [Download from ProDesk.com]

✅ Need help? Book with Noize

Noize takes the stress out of PAYG and shows you how to stay compliant, and build a financial strategy that actually supports growth so you can focus on building the business. [Book at Noize.com.au]

✅ Get the full StartUp Deck

This 360° resource gives you the tools, templates, and guidance to build your business — from startup to scale. [Includes 6 months of complimentary access to ProDesk — StartupDeck.com]

The Bottom Line

PAYG withholding isn’t just a checkbox — it’s part of running a trustworthy, compliant business in Australia.

Sort it out early. Do it right the first time. And keep your business on solid ground as you grow.

Frequently Asked Questions About PAYG Withholding

1. Do I need to register for PAYG withholding if I only hire contractors?

Maybe. If you’re paying contractors mainly for their labour — even if they have an ABN — you might still need to withhold tax under PAYG. The ATO looks at work arrangement, not just titles.

2. How do I register for PAYG withholding in Australia?

You can register online through the ATO Business Portal, via phone (13 28 66), or with the help of a registered tax agent. Most startups choose the online option for speed.

3. Is PAYG withholding registration free?

Yes. Registering directly with the ATO costs nothing. You may incur costs if you hire a bookkeeper or payroll expert to handle it for you, but the ATO service itself is free.

4. What’s the difference between PAYG withholding and BAS?

PAYG is about withholding and remitting employee tax. BAS (Business Activity Statement) includes reporting for GST, PAYG, and more. Think of PAYG as one part of what goes into your BAS lodgement.

5. What happens if I don’t register for PAYG but still pay staff?

You’ll be considered non-compliant by the ATO. Expect late lodgement penalties, potential audits, and fines. This can also affect your reputation with banks and investors.