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Payroll tax is payable by employers whose Australia-wide wages exceed $650,000 between 1 July 2018 and 30 June 2019, with a monthly threshold of $54,166.

The annual tax free threshold from 1 July 2017 to 30 June 2018, was $625,000.

Payroll tax in Victoria Payroll tax in Australia

Common errors are:

  • Employers are not registered when required.
  • Failure to correctly understand the wage components subject to payroll tax.
  • Omission of wage components or incorrect declaration of exempt wage components.
  • Not declaring taxable contractors (i.e. contractors that don't meet a payroll tax exemption).
  • Not declaring fringe benefits, or not applying the correct gross-up factor.
  • Not registering a related entity for grouping purposes where you have:

    • holding subsidiary relationships (mandatory grouping),
    • common control relationships (for example, related shareholders, directors, unit holders, beneficiaries, partners),
    • inter-use of employees between businesses.
  • Not declaring interstate wages.
  • Failure to lodge and/or pay monthly or annual returns by the due date.
  • Not including director superannuation payments or top up payments to a defined benefits scheme.
  • Incorrectly classifying employees as contractors.
  • 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.
  • Incorrect treatment of employment agency/labour hire arrangements, including chain of on-hire agreements.

Employee/contractor common myths

There are many myths about what makes a worker an employee or contractor. By relying on these myths, you can get the employee or contractor decision wrong.

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.

Myths

To ensure you know fact from fiction when determining whether your worker is an employee or contractor, we discuss some common myths about:

Methods of payment

Myth: Being paid on a daily amount indicates that the worker is a contractor engaged to provide a result. Certain methods of payment indicates that a worker is a contractor.

Fact: A worker can still be an employee if they are paid daily. Methods of payment cannot be used to determine whether a worker is an employee or a contractor.

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. The worker is an employee of the employment 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 for a job. 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 will not change the worker into 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 worked out the decision. Do not consider common industry practice when determining whether your worker is an employee or contractor.

Short-term work

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 employees and contractors can be used for casual, temporary, on-call and infrequent work, busy periods, short jobs, specific tasks and projects.

80 per cent rule

Myth: A worker cannot work more than 80 per cent of their time for one business if they want to be considered a contractor.

Fact: The 80 per cent rule, or 80/20 rule as it is sometimes called, 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 a worker is an employee or contractor.

Past use of contractors

Myth: My business has always used contractors, so we do not 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 the worker is an employee or contractor by examining the working arrangement. Unless a working arrangement (including the specific terms and conditions under which the 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 determines whether 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.

Paying super

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 the 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. Additionally, businesses may be required to pay super for their contractors. 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 to whether a worker is an employee or contractor.

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 has a preference to work as a contractor, does not mean your business should engage them as a contractor. Whether a worker is 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.

Using invoices

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. 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. 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.