Payroll Tax Contractors: Payments and Exclusions

Payroll tax on contractors can apply when your client’s arrangement is a relevant contract, even if the worker is independent. Assess the contract under the relevant state’s rules, support any exclusion with evidence and reconcile the taxable amount before approving the return.

When Contractor Payments Attract Payroll Tax

Contractor payments can be deemed wages under state relevant-contract provisions. The employer client receiving the services can owe payroll tax on those payments. Calling the worker a subcontractor, paying an invoice or obtaining an ABN does not settle the treatment.

Keep the assessments separate. Employee classification decides whether the worker is an employee under the applicable test. Relevant-contract provisions can then bring payments to genuine contractors into payroll tax. An exclusion under those provisions requires its own evidence.

Superannuation has a separate test. The ATO’s contractor super guidance covers personal labour contracts that can require super contributions. A payroll-tax exclusion does not decide that obligation.

An incorrect assessment marks every invoice exempt because the supplier has an ABN. A correct assessment records the contracting entity, the workers providing services and the particular exclusion whose conditions are met.

Obtain the Contract Evidence

Obtain the agreement and the service facts before accepting the client’s claimed contractor exemption. Read variations and oral terms recorded by the client alongside the signed contract. Compare them with the work actually supplied.

Request these records for each contractor:

• The contracting parties, ABN and entity type, with the individual workers identified separately.
• The agreement, invoices and payment records, including credit notes and GST amounts.
• A description of the contracted work and where the services were supplied.
• Service dates and a day count across related contracts for the financial year.
• The contractor’s other customers and evidence of services supplied to them.
• Details of people the contractor engaged, their work and their contribution to the contract.
• Materials and equipment supplied, with evidence supporting any claimed deduction.

A contract with an individual and a contract with a company need separate records of who supplied the work. Incorporation does not automatically remove the payments from the contractor provisions. Revenue NSW’s contractor practice note explains the evidence behind its exclusions.

Test the Jurisdiction’s Contractor Exclusions

Apply the revenue office’s exclusions to each contract and financial year separately. Record the conditions tested and the evidence that meets each condition. A contractor working across states needs a conclusion under each applicable jurisdiction’s rules.

NSW Contractor Exemptions

NSW exclusions cover ancillary services with goods, services not ordinarily required and short-duration arrangements. Other exclusions concern services supplied to the public, work performed by multiple people and qualifying owner-drivers. Each category has conditions beyond its label.

For the NSW 90-day exclusion, any work during a day counts as a full day. Combine the same worker’s service days across arrangements. Splitting their work between a company contract and an individual contract does not restart the count.

The less-than-180-day test concerns how long your client ordinarily requires that kind of service. Count the business’s need for the service, including employee-provided services. It does not extend the contractor’s 90-day limit. Match the service facts to the NSW exclusion conditions.

Queensland Contractor Exemptions

Queensland’s contractor exemption rules require a separate assessment. Under its 90-day rule, work crossing midnight can count as two days. If the worker exceeds the limit, the entire period becomes liable unless another exemption applies.

The services-not-ordinarily-required exemption also requires services to the public. Queensland specifies that the contractor derives less than 40% of gross trading income from your client in that financial year. Obtain the income evidence before applying that test.

For a partnership claiming the multiple-person exemption, work performed only by partners does not qualify. The guidance requires at least one partner and at least one employee to provide the services. General bookkeeping help does not prove that another person performed the contracted work.

Victorian Contractor Exclusions

Apply the Victorian relevant-contract exclusions to the actual services and supporting records. Victoria assesses contractors operating through companies, trusts and partnerships as well as sole traders.

Its general exclusions include the 90-day rule, contractors engaging others and services ancillary to materials or equipment. It also covers certain services not ordinarily required, services required for less than 180 days and services normally provided to the public.

The Victorian day count includes any work on a given day. If the contractor exceeds 90 days and no other exclusion applies, all payments are taxable. The first 90 days are not an allowance you can deduct.

Where a Commissioner’s discretion, unusual service arrangement or disputed classification determines the result, obtain technical advice or a ruling. Identify the unresolved condition and provide the agreement with the service evidence. A conclusion reached for Queensland does not approve the NSW or Victorian treatment.

Distinguish Employment Agency Arrangements

Workers obtained for a client through an employment agent require assessment under the jurisdiction’s employment-agent provisions. Identify who procures the workers, whose business receives their services and who pays them. Read the agency agreement and any further on-hire agreements.

Under NSW employment-agency rules, the agent is the deemed employer. Contractor exclusions do not apply to an employment agency contract. An exemption for work supplied to an exempt client has separate conditions and a required client declaration.

Obtain the relevant declaration and evidence that the work qualifies before excluding agency wages. For another jurisdiction, use its employment-agent provisions and prescribed evidence. A contractor declaration for another purpose does not replace them.

A rideshare platform arrangement illustrates why the contract matters. Map the driver, platform and service recipient, then examine who obtains services for whom. The platform name alone cannot decide whether contractor provisions or employment-agent provisions apply. Transporting passengers also does not establish an owner-driver exclusion for transporting goods.

Reconcile Contractor Payments to Taxable Wages

Reconcile the reviewed contractor amounts to the employer’s wage workpaper, showing each exclusion and permitted deduction separately. Start with payment records and match them to invoices. Explain any difference between recorded expenses and the amounts recognised under the applicable payroll-tax rules.

The following fictional NSW example uses dollar amounts. Both suppliers are genuine contractors under direct relevant contracts. The service records support the conclusions shown.

Fictional invoice	Amount paid including GST	Treatment	Taxable contractor wages
Installation contract with no exclusion	$8,800	Remove $800 GST and $2,000 separately identified materials at reasonable market rates	$6,000
Specialist contract, 20 service days in the financial year	$2,200	Supported 90-day exclusion, with all arrangements included in the count	$0
Total	$11,000	Reconciled to the two paid invoices	$6,000

Revenue NSW permits supported non-labour deductions. Keep the material evidence with the calculation. General business overheads are not a deduction simply because the contractor incurs them.

Queensland uses approved non-labour deductions. In a separate fictional Queensland case, a carpenter receives $11,000 including $1,000 GST and supplies materials and equipment. Assume no exemption applies. The approved carpenter deduction is 25%, so the $10,000 GST-exclusive payment produces $7,500 taxable wages.

Victoria also requires approved deductions for contractor materials and equipment. A separately itemised invoice does not allow you to declare only its labour line. Use the Victorian approved deduction and conditions instead of carrying the NSW calculation across.

If a later invoice changes the day count or service facts, reopen the affected conclusion. Recalculate the relevant period and identify any return correction needed. Transfer the approved contractor result into the wider payroll-tax return work.

Approve the Contractor Treatment

Approve a contractor treatment only when the decision record explains the rule, evidence and taxable amount. Use a record with these fields for each contract:

Decision field	What to record
Contract identity	Employer client, contracting entity, worker and agreement reference
Jurisdiction and period	State or territory, financial year and service location facts
Classification	Employee, relevant contract or employment-agent arrangement, with reasons
Source rule	Legislation provision and revenue-office ruling or guidance used
Exclusion assessment	Each claimed exclusion, its conditions and evidence supporting the result
Calculation	Payments, GST, approved deductions and taxable wages
Client explanation	Written factual confirmations and any conflicting information
Review outcome	Reviewer, approval date, unresolved questions and action owner
Reassessment trigger	Further invoices, changed services, new workers or a revised agreement

Keep the source version consulted with the agreement and workpaper. Queensland’s record-keeping guidance describes evidence supporting its exemptions. Retain records under the applicable jurisdiction’s requirements.

Before releasing the return, resolve questions that determine liability and confirm the contractor total agrees with the approved wage workpaper. Assign someone to monitor later invoices so an exclusion does not remain approved after its supporting facts change.