Payroll Tax - changes to 90 day 'deemed' employment from 1 July 2012

In 2007, Payroll Tax rules were harmonised across a number of jurisdictions, including NSW and Victoria. Now, the Office of State Revenue in NSW has published a new ruling, which takes effect from 1 July 2012. The ruling addresses the way '90 days' is calculated for assessing whether contractors will be 'deemed employees', or whether they will be exempt from the 'relevant contracts' on which payroll tax applies.

This distinction between ‘Contractors’ and ‘Employees’ attracts not only attention from the Office of State Revenue (OSR) when assessing a company’s payroll tax liability, but also the ATO and the Fair Work Ombudsman. Notably, these bodies share and cross reference data exposing a greater risk for non-compliant companies.

It is important for payroll tax to be calculated correctly and the correct treatment is applied, in particular to contractors. The payroll tax threshold for NSW is $678,000 for the 2012 Financial Year.

The OSR may assess ‘Contractors’ as employees for the purpose of payroll tax. The relative factors the OSR will consider in drawing the distinction between contractors and employees include:

• The right to control the manner of the performance of work of another
• Whether the person is performing  services which is an integral part of the company
• Whether the terms of the contract are consistent with the practical relationship between both parties
• Whether the contract focuses on the ultimate result or what must be provided during the performance of the contracted task
• Whether the worker is conducting a business on his or her own or actually participating in the business of the business operator
• The provision of equipment used
• Whether there are set hours of work
• Whether the worker has the power to delegate work or subcontract work to another person.

Organisations may wish to use this opportunity to re-assess overall risk in relation to their contracts. Audits and advice may be needed to factor in the different 'deemed employment' rules that apply for different purposes (eg, workers compensation, payroll tax, etc) and the 'sham contracting' risks arising under the Fair Work Act,

If you need any help in assessing your payroll tax liability or whether your contractors meet one of the exemptions listed above then please contact us at End2end Business Solutions.