Payroll Tax vs WorkCover: What’s Included, What’s Exempt — and Why They’re Not the Same

One of the most common assumptions I see in hospitality is that payroll tax and WorkCover use the same wage definitions.

They don’t.

Because both are calculated using wages, many business owners assume:

“If it’s included for one, it must be included for the other.”

That assumption is where small misunderstandings quietly turn into compliance issues — or unexpected costs.

This post explains the difference, in plain English, and where hospitality businesses most often get caught out.

(Victoria-focused. General information only — always confirm your specific position with your accountant, the SRO, or WorkSafe Victoria.)

If you haven’t already, you may find it helpful to read my earlier breakdown of payroll tax in Victoria, which explains when it applies and what counts as wages for hospitality businesses.

Payroll tax and WorkCover: similar inputs, different rules

Payroll tax and WorkCover are often talked about together because they both relate to wages. But they are governed by different legislation, different authorities, and different definitions.

In simple terms:

• Payroll tax is a state tax on taxable wages once thresholds are exceeded

• WorkCover premiums are an insurance cost based on rateable remuneration

They may start with similar data, but they do not always end in the same place.

A key principle to understand:

A payment can be included for one and excluded for the other.

What’s commonly included in both

To ground this properly, there is significant overlap.

In most hospitality businesses, both payroll tax and WorkCover will include:

• ordinary wages and salaries

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

• overtime and penalty rates

• many allowances

This overlap is why assumptions feel reasonable — until edge cases appear.

Where the differences start

This is where things begin to diverge.

Depending on the circumstances, differences can arise around:

• superannuation

• contractor payments

• termination payments, including leave paid out

• parental leave

• apprentices and trainees

Something being excluded for payroll tax does not automatically mean it’s excluded for WorkCover — and vice versa.

This is especially relevant in hospitality, where:

• workforces are casual-heavy

• contractors are common

• staff turnover creates frequent termination payments

Common hospitality assumptions that cause problems

From experience, these are the assumptions that most often lead to issues:

• “If it’s exempt for payroll tax, it must be exempt for WorkCover”

• “Our payroll report should reconcile perfectly for both”

• “Contractors don’t count anywhere”

• “The payroll system handles this automatically”

Payroll systems record what they’re told to record.
They don’t interpret legislation for you.

Why payroll system setup matters more than people realise

How earnings are set up in your payroll system matters.

If earnings categories aren’t mapped correctly:

• reports may not align with SRO definitions

• WorkCover remuneration may be understated or overstated

• year-end reconciliations can uncover discrepancies you didn’t know existed

This is why issues often surface:

• during audits

• when thresholds are crossed

• or when premium adjustments arrive later than expected

The numbers didn’t suddenly change — the definitions did.

What to do if the numbers don’t align

If your payroll tax and WorkCover figures don’t match in the way you expected:

• don’t panic

• don’t assume something is “wrong”

• and don’t ignore it

Instead:

• review how earnings and allowances are classified

• check contractor treatment carefully

• compare payroll reports against SRO and WorkSafe definitions

• get clarity early rather than correcting later

Most issues are manageable when they’re understood early.

Final thoughts

Payroll tax and WorkCover are related — but they are not interchangeable.

Understanding where they differ makes compliance simpler, forecasting more accurate, and growth far less stressful.

For detailed definitions, refer to:

• State Revenue Office Victoria – payroll tax wages

• WorkSafe Victoria – rateable remuneration guidance

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