If you employ staff to help run your business, or you’re about to hire some, then you’re probably interested in whether you qualify for any payroll tax exemptions.
For those of you who have never heard of the term, payroll tax is a state-based tax calculated on the wages employers pay their employees, both actual and deemed.
Employers have an obligation to self-assess their liability each month, and perform an annual reconciliation at the end of each financial year. And if the total wages exceed the relevant threshold levels, the employer may be liable for payroll tax.
Wages can mean more than just ‘salary’
So what exactly are ‘wages’? Broadly speaking, wages are any remunerations made to employees, both actual and deemed. For example, wages could include:
- salaries, commissions, bonuses, allowances
- directors fees
- fringe benefits
- payments in kind
- eligible termination payments
- all superannuation contributions
- payments to employment agencies (for labour hire services)
- payments for service contracts
- payments made to other third parties.
Note: This isn’t a definitive list.
Employees vs contractors
Some of you might be thinking, “Ha! Most of my workers are contractors, so I’ll be fine”. But be warned: the distinction between employee and contractor isn’t always clear. And it’s one area that gets audited quite often. So make sure your ‘contractors’ really are contractors in the eyes of the Australian Taxation Office (ATO).
The general assumption is that all contractors are liable for payroll tax unless they are exempt for one of the following reasons:
- The supply of labour is necessary to the supply of goods owned by the contractor (e.g. hiring a contractor to do work that involves the use of machinery owned by the contractor).
- The services are not ordinarily required, and the contractor provides the same services elsewhere to the public.
- A service is required by the business for fewer than 180 days in the financial year.
- Services are provided by an individual for less than 90 days in a financial year. Note: This focuses on the employment of each contractor. Any amount of time worked during the day is counted as one day—it doesn’t need to be a full day’s work. And the exemption looks at the total number of days in a year. If a contractor works 60 days in one hiring and another 40 days later in the year, the employer will be liable for 100 days for that contractor.
- The contractor delivers, transports or provides goods using their own vehicle.
- The service is related to providing insurance coverage.
- The contractor is selling door to door on behalf of a business purely for domestic purposes.
(If these first four exemptions don’t apply, the employer may apply for an exemption from the Commissioner.)
Contractors who engage two or more people to complete all or part of the work may also be exempt. However, it isn’t enough for the contractor to simply employ more than two people. More than two people must be actively working for the employer.
Don’t gamble on thinking you’re exempt
As you can see, figuring out whether you’ll be liable for payroll tax can get pretty complicated. Having an ABN isn’t enough to guarantee exemption. The Office of State Revenue looks at the totality of the working relationship, including:
- whether the contractor is running a complete business, or just working for you
- how integral the contractor is to your business
- the resources being used — who owns them, and where they’re located.
The bottom line is that if you have any doubts, don’t hesitate to get in touch with us. Because the last thing you need is a hefty fee or penalty.
Or worse still, an audit.