Lauren Sommer, co-founder of Moi Moi Fine Jewellery, knows firsthand the frustration of NSW’s outdated payroll tax threshold. ‘It’s a handbrake on growth,’ she says, explaining how the $1.2 million limit impacts everything from hiring decisions to expansion plans
The payroll tax threshold is a key consideration for many small business owners. In NSW, the stagnant $1.2 million threshold has become a source of frustration, as it fails to reflect rising wages, inflation, and the challenges of running a growing business.
The NSW government is facing increasing criticism for not adjusting this threshold to better support these businesses. Business owners such as Lauren Sommer, co-founder of Moi Moi Fine Jewellery argues that the current system creates unnecessary financial strain, discourages workforce expansion, and hinders growth opportunities.
Payroll tax and growth challenges
For Moi Moi Fine Jewellery, payroll tax is a financial burden that affects day-to-day operations, from hiring decisions to wage increases and even expansion plans. As an added cost on top of salaries, payroll tax directly discourages workforce growth and makes business expansion less viable. Additionally, payroll tax is calculated separately in each state and for businesses likeMoi Moi, who operates in both Sydney and Melbourne markets, has an added layer of tax liability that needs to be considered.
The $1.2 million payroll tax threshold also directly impacts how businesses plan their hiring and expansion strategies. The threshold does come into consideration and can delay new hires or force business owners to explore alternative staffing models like outsourcing to reduce costs. When expanding into a new state, additional payroll tax costs must be accounted for as all employees under the one company are pooled together, despite having varying payroll rates and thresholds in each state which can deter investment in new locations.
The impact of the payroll tax structure
A higher payroll tax threshold would make a world of difference for small business owners trying to grow and scale their operations. A more generous threshold would allow SME’s to expand workforces without worrying about hitting the tax liability threshold too quickly. A phased-in tax rate or exemptions for certain types of businesses like small-to-medium enterprises in retail, such as Moi Moi, would encourage growth and make it easier for companies to reinvest in their workforce.
These kinds of adjustments would ensure that businesses are not penalised for scaling their operations or hiring more employees, providing a more balanced tax structure that encourages growth rather than discouraging it.
The payroll tax burden also has had a ripple effect on the broader business landscape. Instead of investing in employee wage increases or additional benefits, businesses are often forced to allocate funds to cover payroll tax obligations. This diverts resources away from employees, making it harder to attract and retain top talent.
Proposals for reform
To address the challenges posed by payroll tax, many business owners, such as myself, would welcome a variety of reforms.
- Raising the Payroll Tax Threshold: Increasing the $1.2 million threshold to reflect inflation and rising business costs would provide businesses with much-needed flexibility to grow without the burden of immediate tax liability.
- Introducing a Tiered Tax Rate: A tiered system that gradually increases the payroll tax rate as wages exceed the threshold could offer businesses a more manageable transition, rather than an abrupt jump to higher taxes.
- Payroll Tax Relief for Interstate Expansion: Exempting SMEs from payroll tax for the first few years of opening a new location in a different state would incentivise growth in new markets, boosting job creation and regional development.
- Exemptions or Reductions for Job-Creating Businesses: Providing tax relief for businesses that create jobs, particularly those operating in high-growth industries or regional areas, would encourage investment in local job markets.
- Transitioning to a Federal Payroll Tax System: A uniform national payroll tax with consistent rates and thresholds across all states would reduce administrative burdens, minimise compliance costs, and create a more level playing field for businesses expanding across state lines.
- Capping or Eliminating Interest Charges on Late Payments: Reducing penalty interest rates for SMEs facing cash flow challenges would help alleviate some of the financial stress that comes with the timing of tax payments, ensuring businesses aren’t disproportionately punished for short-term delays.
Supporting Small Business Growth
The stagnant payroll tax threshold is a pressing issue that not only adds additional costs and administration for small businesses but also their ability to grow and compete in an increasingly challenging environment. By implementing reforms that align with the current economic reality, the NSW government can create a more supportive and growth-friendly environment for small businesses, something myself and Moi Moi would like to see.
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