Employment agencies

An employment agency arrangement exists if an employment agent obtains a worker to provide services to a client for a fee. Under this arrangement, the worker doesn't become an employee of the client.

The worker can provide these services individually, or through a corporation or trust.

An employment agency arrangement involves:

• the worker contracting with the employment agent
• the employment agent contracting with the client.

An employment agency arrangement isn't considered a ‘relevant contract’, meaning that contractor exemptions don't apply.

To help decide if a particular arrangement is an employment agency contract, read the practice note (CPN 005) on employment agency contracts guidelines.

Payroll tax on employment agents

Taxable wages

An employment agent is considered the employer of the worker providing services to the employment agent's client under an employment agency arrangement. The worker is deemed to be the employee of the employment agent.

Amounts the agent pays to the worker, including wages, fringe benefits and superannuation, are taken to be wages. The employment agent as an employer is liable for payroll tax on all amounts paid to the worker.

Where the worker is an individual

A client pays $12,000 to an employment agency and the employment agency pays $10,000 to the worker. The liable employer is the employment agency and the $10,000 is a liable wage.

Where the worker is a company

A business pays $1 million to an employment agency for the services of Frank Green through Green Pty Ltd. The agency pays $800,000 to Green Pty Ltd. The liable wages are the $800,000 paid by the agency to Green Pty Ltd.

For more examples, read our case studies.

Non-taxable wages

The following aren't taxable wages:

• GST component of a payment.
• Fees the client pays to an employment agency.
• One-off fees paid by the client to a recruitment agency for placing a person with the client. Under this arrangement, the client is responsible for any payroll tax liability. For more information, read Revenue Ruling PTA 029.
• Where the client of the employment agency signs an approved declaration stating they're an employer paying exempt wages, such as a public hospital or charitable body. For more information, read Revenue Ruling PTA 026v2.

Chain of on-hire

A chain of on-hire arrangement is where two or more employment agents stand between the worker and the client. In most cases, the employment agent closest to the ultimate client will be regarded by us as the employment agent who is liable for payroll tax. For more information, read Revenue Ruling PTA 027.

Example

A business seeking labour pays $120,000 to Agency A, which pays $110,000 to Agency B which pays $100,000 to the worker. Agency A’s wages are over the payroll tax threshold. Only Agency A is liable and the liable wages are the $110,000 paid to Agency B.

Payroll tax on employment agents with government clients

The Crown is a company for payroll tax purposes. As such, a government department or other government body can be a client of an employment agent.

You must include all payments from a government department or body for services of a worker in your taxable wages.

For more information, read Revenue Ruling PTA 028.

Anti-avoidance provisions

The payroll tax anti-avoidance provisions apply where an arrangement reduces or avoids liability for payroll tax. There doesn't need to be proof the arrangement was intentional. What matters is the effect the arrangement has on the payroll tax liability.

We examine the facts and circumstances of your business to work out whether to apply the provisions.

We disregard any arrangements, including contracts, when the payroll tax anti-avoidance provisions apply. Your business is then considered an employer and all payments to workers are taxable wages. You’ll be given a notice outlining the details.

Payroll tax assist

Use payroll tax assist to help you meet your payroll tax obligations. It'll show you what wages are taxable.