Business operations

Employee pay, directors' fees and similar PAYG payments

Employee pay, directors' fees and other worker-payment classes that are directly connected with carrying on the business and satisfy PAYG withholding and reporting requirements.

Reviewed 30 July 2026Income years 2025-26 and 2026-27

Who can claim

This deduction is available to individuals and companies.

  • The expense is incurred in carrying on an existing income-producing business.
  • Any private, capital or non-income-producing component is reasonably apportioned or excluded.
  • The payment is salary, wages, commission, bonus or allowance for an employee; a director's fee; a payment to a religious practitioner; a labour-hire payment; or a payment for services where the contractor did not quote an ABN.
  • Required PAYG withholding on a non-cash worker benefit is reported to the ATO.
  • Required PAYG withholding and reporting obligations are met, or an honest mistake is corrected or voluntarily disclosed to the ATO before an examination begins.

What you cannot claim

  • Do not include private drawings or personal expenses.
  • Do not treat a capital asset, improvement or acquisition cost as an ordinary operating expense.
  • A payment that should have had PAYG withheld and reported can lose deductibility if those obligations are not met and the failure is not corrected or voluntarily disclosed before an ATO examination begins.
  • Owner drawings are not wages.
  • Accrued annual leave, long service leave, sick leave or other leave is not deductible until it is actually paid, except for a qualifying accrued-leave transfer payment.
  • Enter a labour-hire, contractor or non-cash benefit cost once under the most appropriate expense rule; do not duplicate it here and under contractor or fringe-benefit costs.

How the amount is worked out

Claim each deductible worker payment once for the income year after checking PAYG and reporting requirements. Include leave only when it is actually paid, unless the accrued-leave transfer-payment exception applies.

Records the ATO expects

  • Payroll and payment records
  • Director and other worker-payment records
  • STP and PAYG reporting evidence
  • Employment or service agreement
  • Leave payment records

Where this rule comes from

Primary source: ATO deductions for payments to workers (Updated 10 June 2025). Reviewed 30 July 2026. Covers the 2025-26 and 2026-27 income years.

Supporting sources:

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