Payroll Tax in Victoria: When It Applies, What Counts, and What Hospitality Owners Get Wrong

Compliance & Obligations
Written By Cybelle Daou

Running a café or restaurant is already complex enough without trying to decipher tax obligations that only seem to matter once it’s too late.

Payroll tax is an intrinsic business obligation that many hospitality owners don’t think about — not because they’re careless, but because it doesn’t apply at start-up. Then the business grows, wages creep up, and suddenly payroll tax becomes a real (and often unexpected) cost.

Let’s break it down, in plain language:

  • when payroll tax applies in Victoria

  • what’s actually counted as “wages”

  • what may be excluded

  • and where hospitality businesses commonly get caught out

Please Note: This is general information only — always confirm your specific position with your accountant or the State Revenue Office (SRO).

So, what is payroll tax?

Payroll tax is a state-based tax on wages, not on profit.

In Victoria, employers are required to pay payroll tax once their total taxable Victorian wages exceed the annual threshold. It’s assessed monthly and reconciled annually.

A key point that often surprises operators:

You can be profitable or struggling — payroll tax is calculated according to wage totals.

This makes it particularly relevant in hospitality, where wages are often high relative to revenue.

When does payroll tax apply in Victoria?

Payroll tax becomes relevant once your total taxable wages exceed the Victorian threshold for the financial year.

A few important points to understand:

  • The threshold applies to taxable wages, not headcount

  • Payroll tax is only paid on the portion above the threshold

  • Related businesses may be grouped, meaning the threshold is shared

This is where many hospitality operators run into trouble — especially those with:

  • multiple venues

  • family-run businesses across different entities

  • companies and trusts operating side by side

If businesses are grouped, the threshold applies once across the group, not per venue or entity.

What counts as “wages” for payroll tax?

This is where assumptions can lead to problems.

For payroll tax purposes in Victoria, wages generally include:

  • gross wages and salaries

  • casual, part-time, and full-time staff payments

  • overtime

  • allowances

  • bonuses and commissions

  • directors’ fees

  • superannuation (in most cases)

  • payments to certain contractors

In hospitality, this often means:

  • casual-heavy workforces push totals up quickly

  • penalty rates and loadings add up faster than expected

  • contractor arrangements aren’t always exempt just because an ABN is involved

If your payroll system isn’t set up correctly, these figures can easily be understated or misclassified.

What may be exempt or excluded

Some payments may be exempt or excluded from payroll tax, depending on the circumstances.

These can include:

  • certain apprentice and trainee wages

  • some parental leave payments

  • specific contractor arrangements

  • genuine reimbursements (as opposed to allowances)

This is also where assumptions can be risky. Something being excluded for one obligation doesn’t automatically mean it’s excluded for payroll tax.

A simple rule of thumb I use:

If it looks like wages, it usually is — unless you’ve confirmed otherwise.

Common payroll tax mistakes I see in hospitality

From years of working behind the scenes, the most common issues are:

  • assuming “we’re too small” without checking wage totals

  • not identifying related entities correctly

  • misclassifying contractors

  • payroll reports not aligning with SRO definitions

  • not planning cash flow once close to the threshold

Payroll tax rarely arrives out of nowhere. It tends to build quietly as businesses grow — until it becomes unavoidable.

What to do if you’re unsure

If your business is:

  • growing

  • opening additional venues

  • increasing headcount

  • or sitting close to the threshold

It’s worth taking the time to:

  • review how wages are classified

  • understand grouping rules

  • check payroll reports against SRO definitions

  • factor payroll tax into forward cash flow planning

The aim isn’t to create stress — it’s to create visibility.

Final thoughts

Payroll tax doesn’t need to be overwhelming, but it does need to be understood.

Clear systems and early awareness make compliance simpler, budgeting more accurate, and growth far less stressful.

For detailed definitions and current guidance, see the State Revenue Office Victoria’s information on wages:
https://www.sro.vic.gov.au/businesses-and-organisations/payroll-tax/wages/understanding-wages

If you’re unsure how this applies to your business structure, it’s worth getting it checked early.

Cybelle Daou