Payroll Tax is a State imposed tax on employers, assessed by the wages paid to employees, applicable when the total amount of wages paid by an employer or a group of employers exceeds a determined threshold.
There are special provisions in these laws for ‘employment agents’ who procure the services of workers for their clients. It is important to understand that the term ‘employment agent’ has a particular definition, and may apply broadly to labour hire arrangements.
Generally, the effect of these provisions is to extend liability to capture remuneration paid by the employment agent to the worker.
The recent case of Compass Group Education Hospitality Services Pty Ltd & Anor v Commissioner of State Revenue [2020] QSC 184 clarifies the application of these provisions in Queensland. The key takeaways are:
- The “Employment Agent” provisions of the Payroll Tax Act 1971 (Qld) do not apply in respect of common law employees. This means there is no tax relief or benefit where the Employment Agent employs the worker as an employee according to ordinary concepts.
- There may be a difference in the payroll tax implications where workers procured by an Employment Agent are providing services to institutions entitled to payroll tax exemptions, depending on whether or not those workers are employees, contractors or engaged on some other basis.
Employment Agency Contract
Under Section 13G of the Act, an employment agency contract is considered as such where a person (employment agent) procures the services of another person (service provider) for a client of the employment agent. Pursuant to Sections 13H and 13I of the Act, an employment agent is considered an employer and a service provider is considered the employee of the employment agent under the Act.
Under Section 13J(1) of the Act, an amount paid or payable in relation to the service provider for the services under the employment agency contract is considered to be ‘wages’ for Payroll Tax purposes.
Under Section 13J(2), however, it states that Section 13J(1) does not apply where if the amount was paid by the client, it would be exempt from payroll. Exemptions from Payroll Tax under the Act include (among others):
- Wages paid by a public hospital to a person engaged exclusively in work of the hospital; and
- Waged paid by a charitable institution where the charitable institution is a hospital or non-tertiary educational institution.
This exemption was considered in the recent case of Compass Group Education Hospitality Services Pty Ltd & Anor v Commissioner of State Revenue [2020] QSC 184.
Compass Group Education Hospitality Services Pty Ltd & Anor v Commissioner of State Revenue
In this case, Compass Group Education Hospitality Services Pty Ltd (Compass Education) employees provided services to the Anglican Church Grammar School (ACGS) whilst Compass Group Health Care Hospitality Services Pty Ltd (Compass Health) employees provided services to the Children’s Health Queensland Hospital and Health Service (CHQ). As ACGS is a charitable institution running a non-tertiary educational institution, wages paid by ACGS were exempt from Payroll Tax per the exemption outlined above. As CHQ is running a public hospital, wages paid by CHQ are also exempt from Payroll Tax per the exemption outlined above. For this reason, Compass Education and Compass Health argued that they were employment agents procuring services from service providers under employment agency contracts and, accordingly, wages paid to those employees for service to ACGS and CHQ were not ‘wages’ for Payroll Tax purposes.
The Commissioner argued that the Employment Agent provisions did not apply in respect of common law employees. In the alternative, the Commissioner argued Compass Education and Compass Health did not procure the services of its employees but instead contracted to provide the services through their employees to ACGS and CHQ.
In this case, it was held that the employment agent provisions in the Act does not provide a benefit to common law employees. The term ‘procure services of another’ found in the Act was not intended to apply to situations where an employer directs, or engages, an employee to provide services for a client. Employers are not considered as ‘employment agents’ under the definition in Section 13G of the Act.
Conclusion
This case further confirms that the ‘employment agent’ provisions in the Act are intended to extend the coverage of Payroll Tax, especially in the situation where the worker is considered neither the employee of the client or the employment agent. This would be applicable to businesses with labour hire arrangements, specifically those who engage workers individually to provide labour to the business’ client.
In view of this case, labour hire providers and employment agents should review their Payroll Tax obligations. Critically, and such business that previously had taken advantage of Section 13J(2) should seek urgent legal advice.
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Written By
Daniel Dash
Senior Associate
NB Lawyers – lawyers for employers
[email protected]
+61 (07) 3876 5111
Lawyer
NB Lawyers – lawyers for employers
Daniel Dash and Zahra Rashedi are part of the commercial law team at NB Lawyers – lawyers for employers working with individuals and business owners on a range of matters including business sales, property disputes, estate disputes, shareholder agreements, intellectual property, litigation and taxation matters.