What is employment income?

Employment income in Australia is the money paid to a worker in exchange for their labour, including wages, salary, commission, bonuses, allowances, and incentive payments. It is the main source of household income for most Australians and is taxed under the federal Pay As You Go (PAYG) withholding system administered by the Australian Taxation Office.

Wages and salary are the most common forms of employment income. Wages are typically paid hourly or by piece, with the rate set by a modern award, enterprise agreement, or individual contract. Salaries are usually paid as an annual amount divided into regular periods (weekly, fortnightly, or monthly). Some occupations also receive overtime pay (typically time-and-a-half or double-time for hours above the ordinary 38-hour week) and penalty rates for evening, weekend, or public holiday work, set by the relevant award or agreement.

Other components of employment income include allowances (for tools, travel, uniforms, or specific qualifications), commission (typical in sales roles), bonuses (one-off or annual performance payments), and equity incentives such as employee share schemes (taxed under specific ATO rules). Casual employees receive a casual loading of 25 per cent above the equivalent permanent rate to compensate for the lack of paid leave and notice of termination.

Employment income is subject to PAYG withholding by the employer, who deducts an estimated amount of income tax from each pay and remits it to the Australian Taxation Office. Employees receive income statements through their MyGov account after the end of each financial year (30 June), with a tax return due by 31 October. Income is taxed at marginal rates: 0 per cent up to 18,200 dollars, 16 per cent on income from 18,201 to 45,000 dollars, 30 per cent on income from 45,001 to 135,000 dollars, 37 per cent on income from 135,001 to 190,000 dollars, and 45 per cent on income above 190,000 dollars (rates effective from 1 July 2024 under the Stage 3 tax cuts). The Medicare Levy of 2 per cent and, for higher-income earners without private health insurance, the Medicare Levy Surcharge are added on top of ordinary tax.