Many business owners are unsure about the difference between PAYGI and PAYGW. They sound similar, but they’re not the same thing.
PAYG Withholding (PAYGW)
PAYGW is the tax you withhold from payments to employees and some contractors. As an employer, you’re required to withhold a portion of each employee’s pay and send it to the ATO. This is reported through your BAS and through Single Touch Payroll (STP).
PAYG Instalments (PAYGI)
PAYGI is a system for pre-paying your own income tax in regular instalments throughout the year, rather than facing a large tax bill at year-end. The ATO calculates an instalment amount or rate based on your most recent tax return.
Key Differences
- PAYGW = tax withheld from employees’ pay — it’s their tax, you’re just collecting it
- PAYGI = pre-payment of your own (or your business’s) income tax
- Both are reported on your BAS but in different sections
- PAYGW is mandatory when you have employees; PAYGI is triggered by the ATO based on your income level
Getting It Right
Mistakes with PAYG can lead to penalties and interest charges. If you’re unsure about your obligations, talk to our team — we handle BAS lodgement, payroll and all PAYG reporting for our clients.