Understanding Your Payroll Tax Obligations

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Understanding your Payroll Tax obligations is no easy feat. This can be complicated by the status of workers hired to undertake work for your business. Staff may be classed as formal employees, or they may be classed as contractors engaged to perform a service. Understanding your staff (or contractors’) employment status is vital to paying the correct amount of Payroll Tax.

What is Payroll Tax?

Payroll Tax is a self-assessed, general purpose tax levied by state and territory governments on employers. It is assessed on the wages paid to employees when the total wage bill of an employer exceeds a certain threshold — the Victorian rates and thresholds can be found here.

Do I have to pay?

Generally speaking, if you are an employer with a monthly wage bill of more than $54,166, yes, you — or your group of employers — have an obligation to remit Payroll Tax to the State Revenue Office of Victoria.

The definition of “wages” for the purposes of Payroll Tax include wages, salaries, allowances, commissions, bonuses, employer (pre-tax) superannuation contributions and several more — the full list is available via the SRO.

But it can get complicated?

Yes, it can. If you run a business with only ordinary staff (full time, part time, casual), then it’s relatively simple: your business pays their wages, your business pays the Payroll Tax. But what if your business hires contractors?

Contractors can make your Payroll Tax obligations complicated. Some payments to contractors are liable for Payroll Tax, whereas others are not. The contractor provisions of Payroll Tax law are intended to tax payments to contractors who provide predominantly labour services, and who work mostly for one employer in a financial year.

Your business’s obligations depend on your contractors’ employment circumstances, and whether there are exemptions for the nature of their work.

Employee or Contractor?

Some contractors may be considered employees for Payroll Tax purposes. This ruling (PDF) from the SRO may assist your business in determining whether a worker is a contractor or an employee, however it can be complicated. If you are unsure of a worker’s status, it is best to seek professional advice from Mead Partners.

Are there exemptions for contractors?

Yes, there are exemptions from paying Payroll Tax on money paid to contractors. There are three specific exemptions for contractors who are owner drivers, insurance agents or door-to-door sellers. There are six additional general exemptions which include:

1. Contractors who provide services to you for 90 days (or less) in a financial year
2. Contractors who engage others to do all or part of the work agreed to in the contract
3. Where the provision of labour (such as a machinery operator) is secondary to the supply of materials or equipment (such as machinery) by the contractor
4. The contractor’s services are not ordinarily required by your business, and the contractor generally performs services of the kind to the public (such as a painter)
5. The services provided by the contractor are of a type ordinarily required by your business for less than 180 days in a financial year, or
6. The SRO Commissioner is satisfied the contractor ordinarily renders services of the type under the contract to the public generally in a financial year

I’m not sure where I stand. Can I get help?

Yes! That’s what we’re here for. If you’re unsure about your Payroll Tax obligations, we recommended seeking professional advice. Mead Partners can help you understand your Payroll Tax obligations and ensure your business is meeting them.