Payroll tax is payable on all wages paid or payable to an employee. In most cases, it will be clear whether an employee/employer relationship or a principal/independent contractor relationship exists. However, there may be cases where the true character of the relationship is unclear or ambiguous.
Determining Whether a Worker is an Employee
The courts have established a number of principles that assist in determining whether a worker is an employee or a contractor. You must consider the full relationship when deciding if your contractor is really an employee. This includes the following factors:
- The degree of control that the business operator can exercise over the worker;
- The nature of the relationship between the parties;
- The purpose of a contract is to achieve a ‘given result’;
- The worker is conducting their own business as distinct from participating in the business of the business operator;
- The right to delegate is initiated and carried out by the worker and not controlled by the business operator;
- The worker bears the commercial risk and responsibility for rectification and injury;
- The provision of tools, equipment and assets without reimbursement or an allowance being paid; and
- Other factors relevant include the right to suspend or dismiss a worker, the obligation to work, working set and regular hours, the payment of a regular or fixed remuneration, the deduction of income tax, providing superannuation benefits, annual leave, sick leave and long service leave and requiring the worker to wear a company uniform.
Further, payments to contractors are liable for payroll tax as well unless an exemption applies. The Revenue NSW (formerly OSR) has provided seven exemptions to help you decide if the contractor is an employee. For example, if you require a contractor to perform a specific type of service which is different from the services you provide in the normal operation of your business for 180 days or less in a financial year, payments to the contactor will be exempted from payroll tax. This must not be confused with the 90 day exemption which focuses on the contractor and the number of days they provide their services. The 90 day exemption applies if the contractor provides the same or similar services for 90 days or less in a financial year. If the services are provided for more than 90 days, the payments for the entire period become liable for payroll tax.
You cannot claim an exemption if the contractor is an employee or if you have an employment agency contract. To determine if an exemption applies, first check:
- If the contractor is an employee, even if they have an ABN or call themselves a contractor; or
- If your contract is an employment contract.
If you require further assistance in relation to payroll tax, please contact our team of experienced Tax Lawyers by clicking here to submit an online enquiry form or call us on 1300 QUINNS (1300 784 667) or on +61 2 9223 9166 to arrange conference or appointment.