STSL tax explained: payroll guide for employers

As an employer in Australia, there’s a good chance you’ll encounter STSL (study and training support loans) when doing your payroll for certain employees.

To ensure payroll compliance, it’s your responsibility to understand what STSL is and how it works.

In a nutshell, if your employees have study and training loans such as HECS-HELP, you need to withhold a portion of your employee’s pay to cover their debt repayment.

Let’s take a deeper dive.

What is STSL tax?

STSL tax is a tax you withhold from your employee’s pay when they have applicable government-funded study and training loans. As an employer, these constitute compulsory repayments. Once they reach a certain salary threshold You must deduct study and training support loans from your employee’s pay, as you would PAYG.

Study and training support loans included in STSL:

• Higher Education Loan Program (HELP)
• VET Student Loan (VSL)
• Student Financial Supplement Scheme (SFSS)
• Student Start-up Loan (SSL)
• ABSTUDY Student Start-up Loan (ABSTUDY SSL)
• Trade Support Loan (TSL)

How does STSL tax work?

As an employer, your employee may have taken out HECS-HELP or one of the previously mentioned government study and training support loans. You’ll need to withhold a certain amount of this based on the employee’s earnings.

This works similarly to withholding PAYG.

The specific salary thresholds and rates of withholding pay change constantly and are affected by factors like their rate of pay. As such, you need to make sure you’re up to date and are withholding the correct amount as dictated by the ATO.

What is the difference between HECS and STSL?

HECS or HELP (now commonly known as HECS-HELP) refers to the actual student loan or financial assistance provided by the government to fund higher education studies.

STSL is the umbrella term used to describe HECS-HELP and other applicable study loans and is commonly used in terms of taxation and payroll.

For the sake of doing your payroll, especially when using payroll or accounting software, STSL and HECS-HELP are essentially the same thing.

What’s the difference between HELP and HECS?

The Higher Education Contribution Scheme (HECS) was a student loan program offered by the Australian government to fund a student’s higher education. Introduced in 1989, HECS functioned as a way for students to pay for tertiary education when they didn’t have the upfront funds.

The HECS debts were to be paid off by taxing the student’s earnings once they reached a certain wage or salary threshold. You could also make voluntary contributions to pay the debt down.

In 2003, HELP was introduced to expand the program and absorb what was known as HECS. These changes were legislated by the Higher Education Support Act 2003 which officially came into effect in 2005. With HELP, the government added new loan types among other changes to the scheme.

Even though superseded, the scheme is still sometimes referred to as ‘HECS’, but now, the entire higher education loan scheme is officially termed ‘HECS-HELP’.

How do you withhold STSL from your employee’s pay?

STLS tax is withheld as you would with PAYG. Here’s a brief overview of how HECS-HELP and other forms of STLS is taxed by employers in Australia:

Employee declaration

When you hire a new employee, they will provide you with a Tax File Number (TFN) declaration form. (This includes information about whether the employee has a HECS-HELP debt.)

Withholding STSL repayments

If an employee has an STSL debt and earns above the repayment threshold, you are obliged to withhold a certain amount from their pay to contribute to their STLS debt repayment.

Minimum repayment threshold

Employees are only required to start repaying their STLS debt once the employee’s earnings exceed a certain threshold. The threshold may change annually, so it’s crucial to check the latest information from the Australian Taxation Office (ATO).

Withholding rates

The ATO provides withholding schedules that outline the percentage of an employee’s income that should be withheld based on their annual income. The more an employee is paid above the threshold, a higher percentage of their income is withheld.

Reporting to the ATO

As an employer, you are required to report the amounts withheld for HECS-HELP repayments to the ATO. This used to be done through activity statements but is now covered by STP.

How much STSL do you withhold?

Study and training support loans operate on an income-contingent repayment system.

The amount withheld from an employee’s pay for loan repayments depends on the employee’s income and the specific repayment thresholds set by the ATO.

The ATO provides a set of withholding schedules and tables that employers use to determine the appropriate amount to withhold based on an employee’s income. The withholding rates are progressive, meaning that higher-income earners have a higher percentage of their income withheld.

(The exact rates and thresholds can change, so it’s essential to refer to the most up-to-date information provided by the ATO.)

Using the STSL tax tables

The ATO provides tax tables to help you work out rates, tax-free thresholds, and withholding amounts for doing your payroll.

To get the most accurate and current information on study and training support loan repayment thresholds and rates, you should refer to the ATO’s official website or contact the ATO directly.

Additionally, you may consult with a payroll or tax professional to ensure that you are correctly withholding the appropriate amount.

Getting advice on STSL

To ensure you are withholding the right STLS tax amount, you need to refer to the ATO’s website for current information. Beyond that, you can gain the advice of a bookkeeper, accountant, or tax professional, to make sure you are doing this correctly in your payroll.