The employment agency provisions apply to a labour hire arrangement where a person (the employment agent) contracts with another (the client) for the provision of labour where there is no agreement between the service provider (that is, contract worker) and the client.

Do employment agencies pay payroll tax?

Yes. Employment agencies who engage persons to provide services to their clients under an employment agency contract are liable to payroll tax.

Payroll tax is calculated on any amount paid to the contract worker from any source in relation to that contract and the value of any fringe benefits and superannuation contributions provided for the contract worker.

Care should be taken in determining if the employment agency provisions apply to your organisation.

These provisions apply regardless of whether the relationship between the contract worker and the employment agency is one of principal/contractor or employer/employee.

The contractor provisions do not apply where a contract worker is provided under an employment agency contract.

Who is deemed to be the employer?

An employment agent under an employment agency contract is deemed to be the employer.

Who is deemed the employee?

The contract worker under an employment agency contract is deemed to be an employee of the employment agent.

What payments are deemed as taxable wages?

Any payments made by the employment agent to or on behalf of the contract worker, including fringe benefits and superannuation, are deemed to be wages for payroll tax purposes and are subject to payroll tax.

What payments are not considered taxable wages?

Where the Employment Agency provisions apply the following payments will not be considered as taxable wages (payroll tax does not apply to these payments):

  • any amount paid in respect of the employment agent’s fee(s);
  • any amount paid in respect of services provided to a client that was an exempt employer under the provisions of Part 4 except for Division 4 or 5 of that Part, Section 50 or under Part 3 of Schedule 2 (other than clause 17). In these situations, the exempt employer is to provide the employment agent with a statement stating that they are exempt from payroll tax.

Further information

For further information see Information Circular No 28: Employment Agency and Revenue Ruling PTA026: Employment Agency Contracts Declaration by Exempt Employees.

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