How this usually works
A good PAYG withholding process starts with registration and payroll setup, then ongoing STP submissions and BAS lodgements.
Most engagements follow three stages:
- Initial review and setup. Confirm PAYG withholding registration, payroll categories, leave and super settings, ABN details and ATO connections.
- Reporting workflow. Run pay cycles with STP, reconcile W1/W2 to payroll reports, and lodge via BAS lodgement monthly or quarterly.
- Ongoing review and fixes. Handle changes (new staff, contractors, allowances), manage amendments via BAS corrections and complete STP finalisation at year-end.
What is PAYG withholding and who it applies to
PAYG withholding applies when you pay employees, directors and some contractors. You withhold amounts from payments you make and send those to the ATO. You then report totals via your BAS:
- W1: Total salary, wages and other payments subject to withholding.
- W2: Amounts withheld from those payments.
You will usually need to register for PAYG withholding before running your first pay. Businesses paying suppliers who don’t quote an ABN may also have withholding obligations in some cases.
Reporting, lodgement and due dates
- Cycle: Report PAYG withholding monthly or quarterly (aligned to your BAS cycle). Larger withholders may have earlier payment timelines.
- Lodgement: Report W1/W2 on the BAS and lodge via Online services, a registered BAS agent, or a tax agent.
- Payments: Pay the withheld amounts to the ATO by the BAS due date. Agent extensions may apply.
- STP: Send payroll data to the ATO each pay run and complete the STP finalisation after year-end so employees receive income statements in myGov.
Australian context to keep in view
- Register for PAYG withholding before paying employees, directors or certain contractors.
- Payments to suppliers without an ABN may trigger 47% no-ABN withholding in some cases.
- Use STP-enabled payroll software and keep payroll items mapped correctly to ensure accurate W1/W2.
- BAS reporting covers GST, PAYG withholding and other obligations. Lodgement can be self-managed or through a registered BAS agent.
If you’re setting up or catching up for the first time, start with BAS Setup or BAS Catch Up Services.
Rates, tax tables and calculations
PAYG withholding amounts are calculated using ATO tax tables and your payroll software settings. Getting these right depends on:
- Accurate employee details, tax file numbers and tax treatment (residency, Medicare, HELP/HECS etc.).
- Correct classification of allowances, overtime, bonuses and termination payments.
- STP Phase 2 mapping so amounts appear under the correct categories.
If your W1/W2 does not reconcile to payroll reports, review payroll categories and employee settings, then re-run reports before lodging the BAS.
Common mistakes and how to fix them
- Incorrect W1/W2 totals. Reconcile payroll summary to BAS figures, fix payroll mapping and amend the BAS if already lodged.
- Missed STP submissions. Lodge outstanding STP events, then finalise year-end when correct.
- No-ABN payments not withheld. Review if no-ABN withholding applies, correct the entry and include in W2 with an amendment if required.
- Late lodgements. Prioritise the most recent period to stop compounding interest/penalties, then work back through older periods.
What to compare before you commit
Scope
Confirm the scope covers PAYG withholding registration, payroll setup, STP, W1/W2 review, BAS lodgement, and any catch-up or amendment work.
Software fit
Choose a provider fluent in your payroll and accounting stack who can explain the end-to-end workflow, not just name tools.
Turnaround and communication
Understand response times, escalation in peak periods, and how sign-off works before each BAS lodgement.
Qualifications and compliance
Prefer a registered BAS or tax agent for compliance work, with clear engagement terms and documented processes.
Commercial fit
Compare fixed vs hourly pricing, reporting rhythm and whether you need compliance-only or broader advisory support.
Best next steps
Write down the exact outcome you need: timely BAS lodgement, W1/W2 reconciliation, payroll cleanup, registration, or STP finalisation.
Then shortlist providers against that outcome. If deadlines are close, start with a quick review to stabilise the next BAS, then plan the cleanup.
Use these related pages to narrow your brief: BAS Lodgement, BAS Review, BAS Corrections or head to Payroll Services for end-to-end payroll help.
Frequently asked questions
What is PAYG withholding?
It’s the tax you withhold from payments to employees, directors and certain contractors. You report totals at W1 (gross payments) and W2 (amounts withheld) on your BAS and pay the withheld amounts to the ATO.
Who needs to register?
Any business that pays employees or directors generally needs PAYG withholding registration. You may also need to withhold when paying suppliers who do not quote an ABN, unless an exemption applies.
How does STP connect to PAYG withholding?
STP sends payroll data to the ATO each pay run. You still complete W1/W2 on your BAS and finalise STP at year-end so employees can access income statements in myGov.
When are payments due?
They’re due with your BAS lodgement according to your cycle (monthly or quarterly). Large withholders may have earlier payment obligations. Registered agents may access extended due dates.
What if my W1/W2 doesn’t match payroll reports?
Reconcile payroll categories, correct employee settings, re-run reports and adjust the BAS. If already lodged, work with a BAS agent to amend.
Can a BAS agent lodge for me?
Yes. A registered BAS agent can register you for PAYG withholding, set up payroll, reconcile W1/W2, lodge BAS, correct past periods and manage ATO communications.