What is an employee?

'Employee' and 'contractor' may have different meanings for payroll tax purposes from what you might expect.
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.

Factors to consider

There are a number of factors to consider when determining if someone is your employee. These include:

• control and direction—the right, authority or degree of control that the business operator can exercise over the worker
• contract vs practical relationship—how the contract describes the nature of the relationship compared to the actual relationship between the parties to the contract, including the conduct of all parties
• contracts to achieve a 'given result'—whether the focus is on the ultimate result or on what must be provided (e.g. labour) while the contracted task is being performed
• independent business (also called the 'integration test')—whether the worker is conducting their own business or simply participating in the business of the business operator
• power to delegate—the capacity of the worker to pay others to undertake the services that the worker was engaged to provide
• risk—whether the worker bears the commercial risk and responsibility for poor workmanship or injury sustained while working 
• provision of tools and equipment—whether the worker provides assets, tools and equipment or incurs overhead expenses
• other indicators. Factors suggesting an employer/employee relationship exists includes
  • the right to suspend or dismiss the 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 benefts, annual leave, sick leave and long service leave
  • requiring the worker to wear a company uniform.

You must consider the total relationship—and not just the factors listed above—before determining whether a worker is an employee or an independent contractor.

See Public Ruling PTA038.1—Determining whether a worker is an employee for more information about employment relationships to help determine whether workers are common law employees.

Other relationships

You may have to pay payroll tax even if:

• a worker is not a common law employee
  
  or
  
  
• a principal makes payments to an interposed entity (e.g. a company).

This is because the definition of wages also includes amounts paid or payable to contractors under the contractor provisions.

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