Our payroll tax compliance program focuses on ensuring employers correctly lodge and pay amounts owing under their annual reconciliation.
To help you get it right, we provide a range of information and tools, including:
- Information on payroll tax in Victoria and payroll tax in Australia.
- Payroll Tax Express, an online portal where you can register and manage your payroll tax.
- A decision tool to help you establish if you have to register for payroll tax.
- Regular webinars and a range of videos that step you through payroll tax.
- Information, including videos and case studies, in relation to illegal phoenix activity, which has been prepared by thenational Phoenix Taskforce, of which we are a member.
Our compliance activities
Our compliance activities include:
- Identifying and investigating employers who fail to lodge and pay amounts owing under their annual reconciliation.
- Identifying employers who fail to lodge and pay monthly or annual returns by the due date.
- Conducting our payroll tax annual reconciliation education program in May and June each year, with webinars on specific issues throughout the year.
- Monitoring employer payment patterns.
- Auditing registered and unregistered employers in Victoria and interstate.
- Detecting employers whose total wages exceed monthly exemption levels and who have not registered for payroll tax.
- Auditing specific compliance issues, such as inclusion of grossed up fringe benefits, superannuation, directors’ fees, management fees, grouping, contractors, employment agents, financial planners and employee share acquisition schemes.
- Verifying voluntary disclosures and refund claims.
- Using audit results from other revenue offices and regulatory bodies including WorkSafe Victoria and the Australian Taxation Office (ATO).
- Auditing common employers on behalf of other jurisdictions.
- Investigating possible under-payments on defined benefit superannuation scheme top-ups.
- Examining the arrangements of labour hire firms and employment agencies.
- Investigating large taxpayers.
- Conducting industry specific projects.
- Participating in a national fringe benefits tax audit program.
- Providing regular education programs for new payroll tax registrants.
- Examining arrangements where common law employees are incorrectly characterised as contractors.
- Closely monitoring, as a member of the national Phoenix Taskforce, suspected illegal phoenix operators.
Common errors to avoid
- Not registering as an employer when required.
- Failing to correctly understand the wage components subject to payroll tax.
- Omitting wage components or incorrectly declaring exempt wage components.
- Incorrectly classifying employees as contractors and not declaring taxable contractors (i.e. contractors that don't meet a payroll tax exemption). There are many myths around whether someone is an employee or contractor so make sure you read our guide to help you determine fact from fiction.
- Not declaring fringe benefits, or not applying the correct gross-up factor.
- Not registering a related entity for grouping purposes where you:
- are holding subsidiary relationships (mandatory grouping),
- have common control relationships (for example, related shareholders, directors, unit holders, beneficiaries, partners),
- are using employees between businesses.
- Not declaring interstate wages.
- Not including director superannuation payments or top-up payments to a defined benefits scheme.
- Incorrectly applying the nexus provisions to employees who work in multiple jurisdictions in a month.
- Not declaring employee share and option schemes (including those granted to directors, former directors and some contractors).
- Incorrect treatment of apprentices and/or registered trainees.
- Incorrectly claiming the regional rate of payroll tax.
- Not claiming the regional rate of payroll tax when eligible.
- Incorrect treatment of employment agency or labour-hire arrangements, including chain of on-hire agreements.
To determine whether a worker is an employee or contractor, you need to look at the whole working arrangement and examine the specific terms and conditions under which the work is performed.
There are many myths about what makes a worker an employee or a contractor and if you rely on these myths you will get the employee-contractor decision wrong.
To help you determine whether your worker is an employee or contractor, we bust some common myths with facts.
Methods of payment
- Myth - Certain methods of payment,for example being paid a daily amount,indicate that a worker is a contractor engaged to provide a result.
- Fact - Methods of payment cannot be used to determine whether a worker is an employee or a contractor, for example, a worker can still be an employee if they are paid daily.
Working through an employment agency
- Myth - A worker working through an employment agency must be a contractor.
- Fact - A worker cannot be a contractor for payroll tax purposes if the worker provides services through an employment agency because they are an employee of that agency.
Having an Australian business number (ABN)
- Myth - If a worker has an ABN, they are a contractor.
- Fact - Having or quoting an ABN makes no difference to whether a worker is an employee or contractor. Just because a worker has an ABN does not mean they will be a contractor for every job. If the working arrangement is employment, whether the worker has or quotes an ABN makes no difference and does not make the worker a contractor.
Common industry practice
- Myth - Everyone in my industry takes on workers as contractors, so my business should too.
- Fact - Just because 'everyone' in an industry uses contractors does not mean they have correctly determined the issue. Do not consider common industry practice when determining whether your worker is an employee or contractor.
- Myth - Employees cannot be used for short jobs or to get extra work done during busy periods.
- Fact - The length of a job or regularity of work makes no difference to whether a worker is an employee or contractor. Both can be used for casual, temporary, on-call and infrequent work, or during busy periods or for short jobs, specific tasks and projects.
- Myth - A worker cannot work more than 80% of their time for one business if they want to be considered a contractor.
- Fact - The 80% rule, or 80/20 rule, relates to personal services income. How a contractor reports their income in their own tax return determines if they can claim some business-like deductions and is not a factor a business considers when determining whether they are an employee or contractor.
Past use of contractors
- Myth - My business has always used contractors, so we don’t need to check whether new workers are employees or contractors.
- Fact - Before engaging a new worker (and entering into any agreement or contract), a business should always check whether they are an employee or contractor by examining the working arrangement. Unless a working arrangement (including the specific terms and conditions under which work is performed) are identical, it could change the outcome of whether the worker is an employee or contractor. Sometimes a business may also have incorrectly determined their worker is a contractor. Continuing to rely on the original 'contractor' decision means the business is incorrectly treating all future workers as contractors when they are employees.
Registered business name
- Myth - If a worker has a registered business name, they are a contractor.
- Fact - Having a registered business name makes no difference to whether a worker is an employee or contractor for a particular job. Just because a worker has registered their business name does not mean they will be a contractor for every job or working arrangement.
Contracting on different jobs
- Myth - If a worker is a contractor for one job, they will be a contractor for all jobs.
- Fact - If a worker is a contractor for one job, it does not guarantee they will be a contractor for every job. The working arrangement and specific terms and conditions under which the work is performed determine if a worker is an employee or contractor for each job. Depending on the working arrangement, a worker could be an employee for one job and a contractor for the next job, or an employee and a contractor simultaneously if completing two jobs at the same time for different businesses.
- Myth - My business should only take on contractors so we do not have to worry about super.
- Fact - A business always needs to look at the working arrangement and examine the specific terms and conditions under which work is performed to determine whether a worker is an employee or contractor. A business cannot decide to treat a worker as a contractor when they are an employee. If you pay an individual contractor under a contract that is wholly or principally for the labour of the person, you have to pay super contributions for them.
Specialist skills or qualifications
- Myth - Workers used for their specialist skills or qualifications should be engaged as contractors.
- Fact - If a business takes on a worker for their specialist skills or qualifications it does not automatically mean they are a contractor. A worker with specialist skills or qualifications can either be an employee or contractor depending on the terms and conditions under which the work is performed. Qualifications or the level of skill a worker has (including whether they are 'blue collar' or 'white collar') makes no difference.
Worker wants to be a contractor
- Myth - My worker wants to be a contractor, so my business should take them on as a contractor.
- Fact - Just because a worker prefers to work as a contractor, does not mean they should be engaged as one. Whether they are an employee or contractor is not a matter of choice, but depends entirely on the working arrangement and the specific terms and conditions under which the work is done. If you give in to pressure and agree to treat an employee as a contractor, you can face penalties, interest and charges for not meeting your tax and super obligations.
- Myth - If a worker submits an invoice for their work, they are a contractor.
- Fact - Submitting an invoice for work done or being 'paid on invoice' does not automatically make a worker a contractor. You need to look at the whole working arrangement and examine the specific terms and conditions under which the work is performed. If, based on the working arrangement, a worker is an employee, submitting an invoice or being paid on the basis of an invoice will not change the worker into a contractor.