Introduction to contractors for payroll tax in Queensland - YouTube

Hi, my name is Simon.

In this video, I'm going to go through the basics of contractors for payroll tax purposes.

Having looked at that introductory payroll tax information, let's now look at payroll

tax contractor-specific provisions.

Yes, payments you make to your contractors can be liable for payroll tax. With the exception

of Western Australia, these contractor provisions are harmonised in all states and territories.

While contractor wages are not captured for payroll tax under the general wages definition

of the Payroll Tax Act, special provisions apply that deem these payments to be wages.

The first step is to consider whether or not the contractor is actually your employee.

This is traditionally known as a 'master–servant' relationship.

The term 'employee', however, is not defined in the Payroll Tax Act.

Therefore, it takes on its ordinary or common law meaning.

The courts have established a number of principles that assist in determining whether a worker

is a common law employee.

In most cases, it will be clear whether an employer–employee relationship exists.

However, there can be situations where identifying the exact nature of the relationship

can be difficult.

If a worker is not defined as a common law employee, it does not necessarily mean payments

to them are not subject to payroll tax.

The definition of wages, under the Payroll Tax Act, also captures some payments to contractors

under the contractor provisions.

Once these payments are captured under the contractor provisions, they are taxable unless

you can claim an exemption under one of nine contractor exemptions.

We will be looking at these exemptions later on.

When you consider if the worker is an employee or an independent contractor supplying a service,

you must consider the totality of the relationship, not just one factor in isolation.

There are many factors that should be considered to help you determine if the worker is in

fact an employee and some of these examples are on the screen.

Firstly, control and direction—

if the business operator has the right to control or direct how, where, when or who

is to perform the work, it indicates that the worker is an employee and not an independent

contractor.

In some businesses, the hiring business does not actually exercise much control or direction

over a worker, but they have right or authority to exercise this control.

To give you an example of that,

a project management firm engages a worker as a site supervisor.

The site supervisor is responsible for overseeing all things that happen onsite.

Let’s say the site supervisor is a highly skilled and experienced tradeperson.

The General Manager of the project management firm may not have the technical skills and

experience to be able to tell the site supervisor how to actually go about performing the work.

However, the project management firm may be able to control or direct the site supervisor

in relation to the general nature of the work to be undertaken, as well as incidental or

collateral matters such as the hours of their attendance at the work site, the records they

must maintain and the format of any progress reports.

Some other factors to consider when determining whether an employee–employer relationship

exists include the formation and terms of the contract.

If the contract uses words such as 'employer' and 'employee', it is an indication that

they are not contractors.

Risk is another factor to consider.

Does the hiring business take on the risks or is it the requirement of the contractors

usually bear their own risk and rectify any issues as they arise without incurring additional

costs to the hiring business?

Payments of leave entitlements and super are indicators that an employee–employer relationship

may exist.

Can the worker delegate or subcontract their work or engage others to undertake the

services for which the worker was engaged?

Business integration—this element looks at if the work performed by the worker

is integrated into daily work of the hiring business or is it completely separate from

the daily work of the hiring business?

If it’s completely separate, the worker may be an independent contractor.

The PTA038 public ruling does provide further guidelines for the integration test.

You should identify whether the worker is in fact running their own business or are

they just participating in your business.

In addition to the factors mentioned, you must also consider

how the worker sources customers. For example, if the worker is providing the services as

a result of winning a tender, this will usually indicate that the worker is operating a business.

If the worker incurs expenditure in earning the income or provides his or her own materials

and equipment,

the greater the expenditure incurred in earning income and the greater the materials and equipment

supplied by the worker, the more likely it is that the worker is operating a business

rather than operating as an employee.

The number of customers the worker has had over the life of their business and during

the financial years concerned should also be considered.

If the workers work only for you in a financial year, this is a strong indicator that an employee–employer

relationship may exist.

Another thing to consider is the Australian Taxation Office rules.

Broadly speaking, if a worker is deemed an employee under tax office rules (for example, you’ve

made this decision following their online decision tool), then they will also be regarded

an employee for payroll tax purposes.

If you determine that the worker is an employee, then the payments made to them should be included

as taxable wages under the broad definition of wages, and they are treated the same as

all your other employees.

However, if you determine the person is in fact a contractor, then payments to them are

taxable unless you can exclude them under any one of the nine contractor exemptions.

For the rest of the video, we are going to assume that we have determined that the contractors

are not employees at common law and therefore we need to look at the contractor provisions

of the Payroll Tax Act to determine whether payroll tax applies.

The slide now on your screen has some further factors that may indicate that the person

is a contractor.

These are generally the opposite of those we covered when identifying if someone is

an employee.

These include: being paid for the results they achieve rather than the time taken to

perform the work; the person provides their own tools or materials to do the work; the

person is free to subcontract the work to others; the person is providing services to

the general public; they are in a position to make a profit or loss; and they can accept

or refuse the work.

While the term ‘contractors’ is the term used for payroll tax legislation, it also

includes sub-contractors and consultants.

It is the facts and circumstances under which the person is engaged that is relevant,

not the name.

So, the first thing you should consider is if the person performing the work is actually

an employee.

If they are, payroll tax applies and they are captured under the broad heading of taxable wages.

If they are not an employee, you should consider if the person is engaged under a relevant

contract.

If no relevant contract exists, payroll tax does not apply.

Where a relevant contract exists, consider whether one of the nine exemptions are applicable.

If none of the exemptions apply, payroll tax will be payable on the total amount less GST

and less any applicable contractor deduction.

If an exemption does apply, payments are not subject to payroll tax.

There are a lot of factors to consider when deciding if a contractor is in fact an employee

or if an exemption applies.

Because of this, we run a webinar specifically on contractors.

If you engage contractors or consultants, we recommend that you register for that webinar.

That completes our look at the contractor provisions for payroll tax.

We hope you have found the session helpful and it has given you a clear understanding

of how to treat contractors for payroll tax.

In the next contractor video, we will be discussing contractor exemptions in detail.

For now though, thank you for watching our video.

Goodbye.