Employment agents
Liability under the Pay-roll Tax Act 1971 is not limited to those employers holding a licence issued under the Private Employment Agents Act 1983.
A business could be liable for pay-roll tax even though it may not consider its business as being an employment agent/labour hire business.
A pay-roll tax liability can arise when:
- there is an agent (an individual or a company);
- the agent has an arrangement with a client;
- the agent procures the services of an individual ('worker') for the client (directly or indirectly via interposed entities);
- under the arrangement, the worker does not become an employee of either the agent or client;
- the worker carries out functions similar to the functions of an employee;
- remuneration is paid or payable (directly or indirectly) by the agent to the worker or interposed entity;
- it is payment for services supplied by the worker to the client;
- the agent receives or will receive (directly or indirectly) a payment (ongoing or lump sum); and
- payment relates to the period of service supplied by the worker.
If the above criteria are met, the remuneration paid or payable by the agent is liable to pay-roll tax. However, any GST component of the remuneration is not taxable.
When referring to functions similar to those of an employee it is not a requirement that the client or the agent have an employee or employees who carry out functions similar to those of the worker.
The term interposed entity refers to interposed individuals, companies or trusts.
The Arrangement:
Payment of $80 is taxable when the worker does not become an employee of either the client or the agent.
Examples
Example 1- 'On-hired' worker does not become the employee of either agent or client
An agent engages a worker and provides the worker's services to a client. The worker does not become the employee of either the agent or client. The agent remunerates the worker (directly or indirectly).
The agent is the person liable to pay-roll tax on wages paid to the worker.
In some cases, it is clear that the agent is the employer and in others, that the client is actually the employer.
Example 2- Employee of agent, on-hired to client
An agent provides the services of a worker employed and paid by the agent, to a client. The agent is the employer liable for pay-roll tax on the wages of its employee.
Example 3- Worker becomes employee of client
An agent locates a prospective worker for a client and charges a fee for that service. The worker becomes an employee of the client. The client is the employer liable for pay-roll tax on the wages it pays to the worker.
Temporary staff
Workers in temporary-hire businesses are engaged on a regular hourly basis or other agreed regular basis. Wages paid directly or indirectly to these workers are taxable. If the temporary worker does not become the employee of either the agent or the client, but is engaged in circumstances such as those in Example 1 above, it is the agent who has to register for pay-roll tax and pay the tax.
For more information, refer to Practice direction pay-roll tax PY 7.2 - Government departments and public hospitals are "clients" under the employment agency provisioins.
