The Chief Commissioner has been auditing companies that provide labour hire services and issuing payroll tax assessments for their subcontracting arrangements. Head contractors or employment agents that obtain the services of subcontractors for their client may be liable for payroll tax on payments made to the subcontractors as the subcontractors may be deemed employees by the Chief Commissioner and consequently payments made to them are deemed wages.

The contractual relationship described in the paragraph above is called an ‘Employment Agency Contract’ in the Payroll Tax Act 2007. An Employment Agency Contract is a contract under which an employment agency or labour hire firm obtains the services of an individual worker for a client. The worker can provide these services individually, through a corporation or a trust. An employment agency contract is not a relevant contract under the contractor provisions. This means that none of the contractor exemptions apply.

An Employment Agency Contract should not be confused with the Recruitment Agency Contract where recruitment agents provide placements of labour for their client who becomes the employer, accepts the employer/employee relationship and is responsible for any liability. The recruitment agents are not liable for payroll tax in this instance.

In JP Property Pty Ltd v Chief Commissioner of State Revenue, the notion of Employment Agency Contract was further made clear by Justice Kunc. Justice Kunc concluded that a contract will meet the description of Employment Agency Contract under the Payroll Tax Act if the services are procured for a client of the employment agent in the sense that they are procured in and for the conduct of the business of the employment agent’s client. In other words:

“are the individual’s services provided to help the client conduct its business in the same way, or much the same way, as it would through an employee, or are they services which, although provided for the client’s benefit, are not provided by the service provider working in the client’s business?”

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