Employer warning: Labour hire scams

If your labour hire/payroll processing contract seems like a deal too good to be true – it probably is

Have you recently contracted your payroll processing function to another company who pays your employee wages, benefits, PAYG, superannuation and payroll tax on your behalf?

Audits across the country have recently identified a scam involving contracted ‘labour hire payroll processers’ who are not passing on payroll taxes to the relevant State Revenue Office.

Despite receiving payroll tax from the employer, these payroll processors have failed to pass on the tax to the State Revenue authorities. Employers are having to pay further amounts to meet their outstanding tax liabilities, while still attempting to recover the amounts paid to the payroll processor.

It is strongly recommended that employers or their advisers conduct appropriate due diligence before engaging a payroll processor to sign a ‘labour hire contract’ to perform these services.

In the cases seen to date, the ’labour hire contract’ is not a genuine labour hire agreement and the workers remain employees of the employer, despite claims by the payroll processer to the contrary. In this situation, an employer remains the liable party and will have to pay the payroll tax to the State Revenue Office, despite already paying monies for payroll tax to the payroll processer.

What can employers do to avoid the scam?

1. Before entering into a labour hire contract with a third party, undertake due diligence and closely scrutinise the arrangements under the contract.

If you have already engaged a payroll processer

1. Ask for proof from the payroll processor that they have passed on the payroll tax to the relevant State Revenue Office.
2. If still unsure, contact the relevant State Revenue Office who may be able to assist you further – If in New South Wales contact Revenue NSW.
3. Notify Revenue NSW if your organisation has been approached by ‘labour hire entities’ wishing to establish this kind of arrangement – your information could save others from the scam.

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