Payroll tax and the cleaning industry
Learn about common payroll tax errors in the cleaning industry and how to correctly declare payments made to contractors and grouping with other businesses.
Employers in this industry provide cleaning services to clients.
To provide these services employers use their own employees and subcontractors, or a combination of the two.
Common payroll tax errors
As an employer in the cleaning industry you must meet your payroll tax obligations.
Payroll tax audits have found that businesses in the cleaning industry fail to:
- recognise that cleaning contracts can be employment agency contracts, and
- declare that they are part of a payroll tax grouping.
These errors often result in cleaning businesses underpaying their payroll tax by a significant amount.
If we conduct an audit on your business we will verify your evidence with third-party information, including information obtained from other government agencies.
Employment agency contracts
The employment agency contract provisions are contained in Division 8 of Part 3 of the Payroll Tax Act 2007 (PTA).
These provisions not only apply to labour hire businesses, they can also apply to businesses that supply services to other businesses under a contract for service.
Businesses in the cleaning industry are commonly engaged to provide cleaning services for their clients and typically use consumables — tools and equipment supplied by the cleaning business or the worker — to meet the contractual obligations under the contract with the client.
Payroll tax audits show that cleaning businesses often:
- fail to recognise that their cleaning contracts are employment agency contracts, and
- incorrectly apply contractor exemptions to payments made to workers under employment agency contracts.
Businesses cannot claim contractor exemptions under an employment agency contract because there is no provision for them under section 37 of the PTA.
These errors result in underpaid payroll tax because payments relating to subcontractors are not correctly declared as taxable wages.
When is the arrangement an employment agency contract?
Generally, parties to the contract are the cleaning business and its client, and the cleaning business and the worker.
The test that determines if a contract is an employment agency contract is whether the worker performs services ‘in and for’ the conduct of the client’s business.
Some of the factors you must consider in determining whether the worker is performing services ‘in and for’ the conduct of the client’s business include:
- continuity of services
- regularity of services
- where the worker performs the services
- control and direction of the worker by the client
- use of the client’s facilities by the worker, and
- uniforms worn by the worker.
If the worker is helping your client conduct their business in the same way, or much the same way, as an employee, the worker is regarded as part of your client's workforce. The arrangement is an employment agency contract.
To help you decide if your business has employment agency contracts read the:
Example
This example details an arrangement that Revenue NSW would consider as an employment agency contract.
Please note, this is just one example. There are many different arrangements used in the cleaning industry. A range of factors determine whether an employments agency contract exists.
Grouping errors
There are several ways businesses can be grouped under Division 2 of Part 5 of the PTA.
Grouped businesses are only entitled to claim one payroll tax threshold for the group.
Failing to recognise that businesses are grouped usually results in significant underpayment of tax due to multiple payroll tax thresholds being claimed by members of a group.
Payroll tax audits often find cleaning businesses fail to declare that they are part of a group by way of common control or use of common employees.
Common control
Businesses may be grouped through common control under section 72 of the PTA.
This occurs when a person(s) has a controlling interest in two or more businesses.
Use of common employees
Businesses may also be grouped through the use of common employees under section 71 of the PTA.
This occurs when one or more employees of a business perform duties in another business.
To learn more about common control, the use of common employees and payroll tax thresholds read the:
Anti-avoidance provisions
The payroll tax anti-avoidance provisions apply where an arrangement reduces or avoids liability for payroll tax.
There does not 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.
The Chief Commissioner may disregard the agreement, transaction or arrangements and determine that any:
- party to the arrangement is taken to be an employer, and/or
- payment in respect of the arrangement will be deemed taxable wages.
You will be given a notice outlining the details.
Read section 42 and section 47 of the PTA for more details.
What you need to do
You should conduct an internal review of your business to determine the correct payroll tax treatment of payments made to all workers.
Registered businesses
If you have identified an underpayment, or not declared liable amounts in your monthly payroll tax return for the current financial year, include these additional amounts in your next monthly return and/or annual reconciliation.
Unregistered businesses
If your taxable wages exceed the monthly payroll tax threshold in the current financial year, or the last four financial years, you must register for payroll tax.
Register for payroll tax now
Voluntary disclosure
Voluntary disclosures attract a reduced level of penalty tax compared to cases where we identify an underpayment. Interest will still be imposed.
Non-compliance identified through our data matching activities will result in penalty tax and interest charges, in addition to any underpayments detected.
Contact us to make a voluntary disclosure if you have not declared all liable amounts in your returns, including previous financial years.
Contact the payroll tax team
If you have questions about this topic call 1300 139 815 or +61 2 7808 6904 for international callers.
You can also email [email protected]