Payroll tax

Payments to contractors performing work under a relevant contract are liable for payroll tax unless the contract satisfies one of the seven criteria outlined under the heading 'When is a contract not liable for payroll tax?'.

For payroll tax purposes the meaning of an employee and a contractor may be different. Before checking the liability of contractor payments, first determine whether or not the worker is performing their services as an employee or a contractor. Even if a worker has an ABN and calls themselves a contractor, an employer/employee relationship may exist, in which case the contractor provisions don't apply.

Who is an employee?

An employee is typically subject to control on how, where and when they perform their work. They are paid regularly and cannot pay someone else to do their work. You need to consider the total relationship with the business including:

  • Control – who determines who, when, where and how the tasks are completed, and when and how the worker is paid.

  • Integration – is the worker providing the services while conducting a business or as part of the operations of the employer.

  • Contract vs practical relationship – are the terms of the contract consistent with the practical relationship between the parties.

  • Contracts to achieve a given result – does the contract focus on the ultimate result or what must be performed during the performance of the contract.

  • Independent business – is the worker conducting a business on their own or actually participating in the business of the business operator.

  • Power to delegate - does the worker have the power to delegate work or sub-contract to another person to complete the services for which they were engaged.

For more information, view Revenue ruling PTA 038 – Determining whether a worker is an employee.

Who is a contractor?

An independent contractor is an entity that agrees to produce a designated result for an agreed price and in most cases:

  • is paid for results achieved
  • provides all or most of the necessary materials and equipment to complete the work
  • is free to delegate work to other entities
  • has freedom in the way the work is done
  • provides services to the general public and other businesses
  • is free to accept or refuse work
  • is in a position to make a profit or loss.

Contractors can include:

  • sub-contractors
  • consultants
  • sole traders
  • companies
  • partnerships
  • trusts.

What is a relevant contract?

A relevant contract is a contract under which:

  • a business is supplied with services


  • goods are supplied to natural persons for the re-supply of those goods to the business in a modified form.

Under a relevant contract:

  • all the payments under the contract (except GST and materials) are deemed to be wages
  • the person in receipt of deemed wages is taken to be an employee
  • the persons (usually a corporation) paying those wages are taken to be an employer.

When is a contract not liable for payroll tax?

If a contract meets any of the following seven criteria, the contract is not liable for payroll tax:

  1. Contracts under which the basic purpose is to supply goods, and the labour or services provided under the contract is only incidental to this.

    For more information, view Revenue ruling PTA 033 – Contractors – Services Ancillary to the supply of goods.

  2. Contracts for services a business does not normally require and the contractor provides these services to the public generally.

    For more information, view Revenue ruling PTA 022 – Contractors – Services not ordinarily required.

  3. Contracts for services normally required by a business for less than 180 days in a financial year.

    For more information, view Revenue ruling PTA 020 – Contractors – 180-day exemption and Revenue ruling PTA 014 – What constitutes a day's work.

  4. Contracts under which a contractor provides services up to 90 days in a financial year.

    For more information, view Revenue Ruling PTA 035v2 – Contractors – 90-day exemption and Revenue ruling PTA 014 – What constitutes a day’s work.

  5. Contracts that do not meet any of the above criteria, but the Chief Commissioner is satisfied the contractor provides services of that kind to the public generally within a financial year. To qualify you must submit a written request, together with evidence that the services were actually provided to the public, to the Chief Commissioner.

    For more information, view Revenue Ruling PTA 021 – Contractors – Exemption for contractors ordinarily rendering services and Revenue ruling PTA 014 – What constitutes a day's work.

  6. Contracts under which the contractor engages additional labour (two or more people) to fulfil the terms of the contract.

    For more information, view Revenue Ruling PTA 023 – Contractors engaging others.

  7. A contract for the conveyance of goods in a vehicle, which must be provided by, and owned or leased by the contractor.

    For more information, view Revenue Ruling PTA 006 – Payroll tax exemption for payments to owner-drivers.

Note: these exemptions will not apply where the Chief Commissioner determines that any part of the arrangement(s) was entered into with the intention of avoiding payment of tax.

What payments are liable under a contract?

Where services are provided under a contract, only payments relating to the labour component are a wage, and therefore liable. The Goods and Services Tax component is not liable.

If the contract does not separate the material component from the labour component, the agreed percentage deductions listed in the following table will apply. A reduction does not apply for other costs such as transport and home office incurred by the contractor.

If you believe a lesser percentage applies to labour in your contract or if your industry is not listed below, you will need to contact us for determination.

Trade Deduction from gross payments to contractor (%)
Architects 5%
Blind fitters 25%
Bricklayers 30%
Building supervisors who provide their own vehicles and inspect more than 6 sites per week 25%
Cabinet makers/ kitchen fitters 30%
Carpet layers 25%
Carpenters 25%
Computer programmers 5%
Draft persons 5%
Electricians 25%
Engineers 5%
Fencing contractors 25%
Painters who provide their own paint 30%
Painters who do not provide their own paint 15%
Plumbers 25%
Resilient floor/vinyl layers 37%
Roof tilers 25%
Tree fellers 25%
Wall and ceiling plasterers 20%
Wall and floor tilers 25%

For more information, view Revenue Ruling PTA 018 – Contractor deductions and Revenue Ruling PTA 019 – Contractors – Labour and non-labour components.

Last updated: 7 July 2016