What is an employee?

Even if you contract someone to work for you and the contract defines them in a different capacity (such as ‘independent contractor’), they may still be your employee.

All amounts you pay your employees in return for their services are liable for payroll tax.

The ‘control’ test

The more control that you can exercise over the way a person carries out their work, the more likely they are to be your employee. While this depends on each situation, a person is more likely to be your employee if they:

• cannot delegate their work or get someone else to perform the work of the contract
• are not exposed to commercial risk and cannot make a profit or loss from working for you
• are entitled to sick leave, annual leave and regular payments at set rates
• do not supply major equipment while working for you
• work exclusively for you at set times and locations for a long period.
  

The ‘integration’ test

If you are still not sure if they are your employee, you can look at:

• how important that person’s work is to the nature of your business
• whether they are carrying on a business in their own right.
  

Still unsure?

If you decide that someone who works for you is an employee, all payments you make to them are taxable.

If you do not think they are an employee, you must decide if they fit into the following categories instead:

• worker supplied by an employment agent 
• a contractor.

See Public Ruling PTAQ000.1—The master/servant relationship for more information.