Payroll tax on employment agent or labour hire arrangements
An employment agency contract exists if an employment agent obtains a worker to provide services to a client in return for a fee. Under this arrangement, the worker does not become an employee of the client.
The worker can provide these services individually or through a corporation or trust.
The diagram below demonstrates how an employment agent arrangement works.
An employment agent arrangement usually involves the following:
- the worker contracting with the employment agent
- the employment agent contracting with the client.
Note: An employment agency is different from a recruitment agency arrangement. See the public ruling about recruitment agencies (PTA029) for more information.
An employment agent is considered the employer of the worker providing services to the employment agent's client under an employment agency contract. The worker is deemed to be the employee of the employment agent.
Amounts the agent pays under the employment agency contract, including fringe benefits and superannuation contributions, are taken to be wages. The employment agent as an employer is liable for payroll tax on wages they pay the worker directly or indirectly.
The following are not considered taxable wages when they are paid as part of an employment agency contract:
- GST components of a payment
- fees the client pays the agent.
Using a payroll processing contractor
If you contract someone to process your payroll, you should make sure that they are passing on any payroll tax to Queensland Revenue Office.
There have been cases where some labour-hire payroll processers are not passing on the tax, even after receiving funds from the employer. Employers are then having to pay extra amounts to meet their outstanding tax liabilities, while attempting to recover what has already been paid to the payroll processor.
What you should do
Before entering into a labour hire contract with a third party, you should inspect the arrangements under the contract.
If you have already engaged a payroll processer, ask for proof that they are paying the payroll tax.
If you are unsure, call 1300 300 734 for Queensland payroll tax, or contact the relevant state revenue office.
Chain of on-hire
A chain of on-hire exists when an employment agent on-hires a service provider to another employment agent, who hires out the service provider to an end-user client.
Generally, only one agent in the chain is liable for payroll tax. This is usually the agent closest to the end-user client. If they do not pay payroll tax or are under the threshold, other agents in the chain may be liable.
There is no separate payroll tax form for reporting chain of on-hire in Queensland. The employment agent responsible for payroll tax in the chain of on-hire arrangement reports the taxable wages in their returns.