Payroll Tax

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Payroll Tax and employees

Each State and Territory has their own Payroll Tax Legislation.

In QLD, NSW, VIC, SA and NT, the definition of ‘employee’ is extended to include a person who performs work under a relevant contract.

In WA, an employee for the purposes of the WA Payroll Tax legislation is the common law meaning.

In TAS, an employee includes a person who performs work for or in relation to which services are supplied to the client under an employment agency contract is taken to be an employee of the employment agent.

In the ACT, the definition of employee is extended to include a person who performs work under a relevant contract and an employment agency contract.

An employer may be required to pay additional payroll tax, depending upon the jurisdiction. A failure to pay payroll tax may result in penalties being payable by the employer for non-payment.

Which workers are employees?

If you employed an individual, there are 2 main issues to consider:

  1. the definition of ‘employee’ in the relevant legislation; and
  2. the details within the working agreement or contract.

A worker who has an ABN is not automatically considered to be a contractor.

Consequences of a worker being determined to be an employee and not a contractor

If you have engaged a worker as a contractor, they may under the law be an employee. If so, there are 3 major tax issues which may arise, depending on the circumstances:

  1. The employer may be required to pay PAYG amounts to the Australian Taxation Office (‘ATO’);
  2. The employer may be required to pay additional payroll tax and penalties; and
  3. The worker may be owed significant unpaid superannuation benefits.
For further details, see our publication "What are the major tax issues when a contractor is found to be an employee?"

For companies near the point of insolvency, depending on the circumstances, a failure to remit PAYG to the ATO or pay superannuation amounts may result in Director Penalty Notices being issued to each director (including shadow directors and de facto directors). For details about Director Penalty Notices, please see our publication "Who is considered to be a director under the Director Penalty Notice regime?"

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