• Frequently Asked Questions


      Payroll Tax Overview

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    Is payroll tax the same as income tax?

    No. Payroll tax is a state tax assessed on wages paid by an employer. Income tax is a federal tax deducted from an individual’s income and is administered by the Australian Taxation Office.

     

    When am I liable for payroll tax?

    As an employer, you are liable for payroll tax when you or your group’s total Australian taxable wages exceed $70,833 per month or $850,000 annually.

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    If I think I am liable for payroll tax, what must I do?

    If you think you are liable for payroll tax, you must register for payroll tax via our electronic portal, Revenue Online

     

    Are the wages I pay in other States taxable in Western Australia?

    No. You are only liable to pay payroll tax on the wages paid or payable in Western Australia. The Australian taxable wages details you or your group submit during annual reconciliation are used for calculation purposes only.

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    How does grouping affect my payroll tax liability?

    The effect of grouping is that the wages of all businesses in a group are combined to determine:

    • if you are required to register for payroll tax
    • whether you are liable for payroll tax
    • the deductible amount claimed by the Designated Group Employer (DGE)

    A member of your group is nominated as the DGE for the purposes of claiming any deductible amount.  Tax is paid by each individual group member on the wages paid in its own right.  All members of a group are jointly and severally liable for any payroll tax debts due of another group member.  The Commissioner has a discretionary power to exclude a business from a group.  The grounds for exclusion vary according to the provisions under which the business constitute a group.

    For further information please refer to the Grouping Provisions Fact Sheet.

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    When and how do I pay the payroll tax?

    Once you have registered for payroll tax and your application is approved, you will be advised via email of your registration details including your frequency of lodging returns.  Monthly returns are due and payable by the 7th of the following month in which the taxable wages were paid or payable, whichever occurs first.  The June return is due and payable by 21 July.  Quarterly returns are due and payable by 7th October, January and April and 21 July.  Annual returns are due and payable by 21 July.  You can pay payroll tax by BPAY, Electronic Funds Transfer (EFT), and direct debit (Customer Initiated Payment Account) through your Revenue Online account.

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    Contractor or Employee?

    As an employer, your payroll tax liability may be affected depending on whether a worker is a contractor or an employee. Payments to contract workers will be taxable if an employee/employer relationship exists between the employer and the worker. To determine whether an employee/employer relationship exists, each case must be considered on its own particular facts and you need to examine the totality of the relationship. There are many myths about what makes a worker an employee or contractor.  Often businesses rely on these myths and get the ‘employee or contractor’ decision wrong.  To ensure you know fact from fiction when determining whether your worker is an employee or contractor, we discuss some of the most common myths about: 

    Method of payment

    Myth: Being paid a daily amount indicates that the worker is a contractor engaged to provide a result.

    Myth: Certain methods of payment indicate that a worker is a contractor.

    Fact: Being paid daily does not rule out the fact that a worker can still be an employee. The method of payment is not a determining factor in establishing whether a worker is an employee or a contractor.

    Working through an employment agency

    Myth: A worker working through an employment agency must be a contractor.

    Fact: A worker cannot be a contractor for payroll tax purposes if the worker provides services through an employment agency. Under the Pay-roll Tax Assessment Act 2002 the worker is neither an employee of the client or the employment agent, although the employment agent is liable for payroll tax on payments to the worker.

    Having an Australian Business Number (ABN)

    Fact: Having or quoting an ABN makes no difference to whether a worker is an employee or contractor for a job. This reason alone does not provide sufficient grounds to conclude that the worker is a contractor. If the working arrangement is that of an employer/employee, whether the worker has or quotes an ABN makes no difference and will not change the worker into a contractor.

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    Common industry practice

    Myth: Everyone in my industry takes on workers as contractors, so my business should too.

    Fact: Just because 'everyone' in an industry uses contractors does not mean they have correctly worked out the decision. Do not consider common industry practice when determining whether your worker is an employee or contractor.

    Short-term work

    Myth: Employees cannot be used for short jobs or to get extra work done during busy periods.

    Fact: The length of a job (i.e. short or long term) or regularity of work is not a determining factor in establishing whether a worker is an employee or contractor. Both employees and contractors can be used for casual, temporary, on-call and infrequent work, during busy periods, for short jobs, specific tasks and projects.

    80% rule

    Myth: A worker cannot work more than 80% of their time for one business if they want to be considered a contractor.

    Fact: The 80% rule, or 80/20 rule as it is sometimes called, relates to personal services income. For payroll taxes purposes, the whole relationship is taken into account, not the percentage of time spent working for each business.

    Past use of contractors

    Myth: My business has always used contractors, so we do not need to check whether new workers are employees or contractors.

    Fact: Before engaging a new worker (and entering into any agreement or contract), a business should always check whether the worker is an employee or contractor by examining the working arrangement. Sometimes a business may also have incorrectly determined their worker is a contractor, and so continuing to rely on the original contractor decision would mean the business is incorrectly treating all future workers as contractors when they are employees.

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    Registered business name

    Myth: If a worker has a registered business name, they are a contractor.

    Fact: Having a registered business name makes no difference to whether a worker should be considered an employee or contractor for a particular job. For the purpose of determining payroll tax liability, the fact that the worker is paid or engaged through their interposed entity or business such as a company, partnership or trust is irrelevant.

    Contracting on different jobs

    Myth: If a worker is a contractor for one job, they will be a contractor for all jobs.

    Fact: If a worker is a contractor for one job, it does not guarantee they will be a contractor for every job. Each working arrangement must be considered on its own particular facts. Depending on the working arrangement, a worker could be an employee for one job and a contractor for the next job, or an employee and a contractor if completing two jobs at the same time for different businesses.

    Specialist skills or qualifications

    Myth: Workers used for their specialist skills or qualifications should be engaged as contractors.

    Fact: If a business takes on a worker for their specialist skills or qualifications it does not automatically mean they are a contractor. A worker with specialist skills or qualifications can either be an employee or contractor depending on the terms and conditions under which the work is performed.

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    Worker wants to be a contractor

    Myth: My worker wants to be a contractor, so my business should take them on as a contractor.

    Fact: Just because a worker has a preference to work as a contractor is not sufficient grounds to determine that a principal/independent contractor relationship exists. Whether a worker is an employee or contractor is not a matter of choice, but depends entirely on the working arrangement and the specific terms and conditions under which the work is done. If you give into pressure and agree to treat an employee as a contractor, you can face penalties, interest and charges for not meeting your tax and superannuation obligations.

    Using invoices

    Myth: If a worker submits an invoice for their work, they are a contractor.

    Fact: Submitting an invoice for work done or being 'paid on invoice' does not automatically make a worker a contractor. To determine whether a worker is an employee or contractor, the entire working relationship must be taken into consideration.  For further information regarding contracting arrangements and employer/employee relationship determinations, please refer to Revenue Ruling PT 6 'Guidelines on Subcontracting Arrangements – Employment Agents'.  If you would like our Office to make a determination on whether your payments made to contractors are liable for payroll tax, please complete form FPRT6 'Questionnaire: Contractor Payments' and return it to us.

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    Common Payroll Tax Errors

    As an employer, you are responsible for ensuring that the information you provide to our Office is correct. A mistake on your return could result in an overpayment of tax or the imposition of penalties. To assist you in complying with your payroll tax obligations, here are some common payroll tax errors to avoid:

    • failing to register when required
    • incorrectly omitting wage components or incorrectly declaring exempt wages
    • incorrectly classifying employees as contractors resulting in the non-declaration of taxable contractor payments
    • not declaring fringe benefits or not applying the correct gross up factor
    • not registering a grouped entity, resulting from:
      • holding/subsidiary relationships (related bodies corporate)
      • common control relationships (common partners/shareholders/directors/beneficiaries or any combination of these)
      • common use of employees
    • not declaring interstate wages at annual reconciliation
    • failing to lodge and pay monthly or annual returns by the due date
    • not declaring directors' superannuation payments or top-up payments to a defined benefit scheme
    • incorrectly applying the nexus provisions to employees who work in multiple jurisdictions in a month

    Where can I attend training on payroll tax or watch help videos?

    We offer a wide variety of face-to-face and webinar sessions, help videos, and other educational resources. See our Customer Education page for more details.

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