How to Set Up PAYG Withholding as a Sole Trader

By Narelle Hartigan, CPAPublished 7 July 20266 min read

You must register for PAYG withholding before you are first required to withhold from a payment, which in practice means before your first employee's first payday. Registration is free, attaches to your ABN, and takes minutes through the Australian Business Register or ATO online services. After that come the ongoing pieces: withholding the right amounts, reporting each payday through Single Touch Payroll, and remitting to the ATO. The system you are signing up to is explained in the PAYG withholding guide.

Jump to:When registration is requiredHow to registerWhat happens after: STP and remittanceCalculating PAYG for employeesFAQ

When registration is required

The trigger is any payment you are obliged to withhold from. Hiring your first employee is the obvious one, but the net is wider: directors' fees, some contractor arrangements under voluntary agreements, and payments to suppliers who do not quote an ABN all carry withholding obligations. Paying yourself as a sole trader is not one of them. Sole trader drawings carry no withholding, which is why the ATO collects your own tax through PAYG instalments instead.

Timing rule

Register before the first payment that requires withholding, not after the first payroll. The obligation exists from day one of employing, and backdated registration is a conversation with the ATO you can avoid entirely by doing it in the week you hire.

How to register

All channels lead to the same PAYG withholding account attached to your ABN:

  • With your ABN application. Tick PAYG withholding on the Australian Business Register form when applying for the ABN. New businesses should do it this way and save a second step.
  • Online services for business. Add a PAYG withholding registration to an existing ABN.
  • ATO online services via myGov. The sole trader route, under the tax registrations menu.
  • Your registered tax or BAS agent can register on your behalf.
  • Phone 13 28 66, the ATO business line.
  • No ABN? Employers who need to withhold without an ABN (some household employers of carers and nannies, for instance) register a withholding-only account using form NAT 3377.

What happens after: STP, remittance, records

  1. Collect a TFN declaration from each employee

    The employee's answers (tax-free threshold, HELP debt, residency) set which withholding scale applies to them.

  2. Report each payday through Single Touch Payroll

    STP-enabled software sends wages, withholding and super to the ATO with every pay run. What the current reporting rules require is covered in Single Touch Payroll.

  3. Remit the withheld tax on your cycle

    New and small employers (up to $25,000 withheld a year) pay quarterly with the activity statement; from $25,001 to $1 million it is monthly by the 21st. The dates live in PAYG due dates.

  4. Finalise at year end

    An STP finalisation declaration after 30 June marks employees' income statements as tax ready in myGov. No paper payment summaries needed.

Calculating PAYG for employees

The amount to withhold comes from the ATO's withholding schedules for each pay frequency, taking each employee's declaration answers into account. Payroll software applies them automatically; to check its work or quote a take-home figure to a new hire, the PAYG withholding calculator applies the 2026-27 scales directly. For manual pay runs, the published tax tables give the per-period amounts for weekly, fortnightly and monthly cycles.

Frequently asked questions

How do I set up PAYG withholding as a sole trader?
Register the PAYG withholding role against your ABN before your first employee payday: through the ABR when applying for the ABN, in ATO online services via myGov, through Online services for business, via your agent, or on 13 28 66.
Do I withhold tax from my own drawings as a sole trader?
No. Drawings are not wages, so no withholding applies. Your own income tax is collected through PAYG instalments once your business income crosses the entry thresholds.
How do I calculate PAYG for employees?
Apply the ATO withholding schedule for the pay frequency, using each employee’s TFN declaration answers. Software handles it; the tax tables and a withholding calculator let you verify any figure by hand.
Does registering for PAYG withholding cost anything?
No. It is a free registration attached to your ABN, and cancelling it later when you stop employing is also free.
When do I send the withheld money to the ATO?
On your withholding cycle: quarterly with the BAS for small withholders, monthly by the 21st for medium, within 6 to 8 days electronically for large. The ATO sets and reviews your cycle from your annual withholding.
Do I need to register before hiring a contractor?
Only if withholding applies, such as a voluntary agreement or a missing ABN on their invoice. Ordinary contractors with an ABN manage their own tax through instalments.

Sources

Related resources

Calculator

PAYG Withholding Calculator

Per-pay withholding at 2026-27 scales

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Tables

Tax Tables

Weekly, fortnightly and monthly amounts

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Guide

Single Touch Payroll

The payday reporting registration brings

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Narelle Hartigan
Narelle Hartigan, CPA Verified Expert
Tax Accountant & PAYG Specialist

Narelle Hartigan is a CPA-qualified tax accountant with over a decade of experience in Australian personal taxation and payroll. She founded PAYG Calculator Australia to make tax withholding easy for every Australian worker to understand.

CPABCom (Accounting)
Published: 28 July 2026