Payroll Tax – Who is an employee?

  • Blog
  • Payroll Tax – Who is an employee?
View All Articles

Scroll for more

In the recent decision of Freelance Global Ltd v Chief Commissioner of State Revenue, the Supreme Court of New South Wales ruled that Freelance Global Ltd (“Freelance”), a company which described itself as a specialist in facilitating work for independent contractors, was an “employment agent” for the purposes of payroll tax.

The case highlights the importance of understanding who is an employee for payroll tax purposes as the consequences can be significant if you get it wrong.

How does the Freelance system operate?

In simple terms, Freelance would enter into a contract with a client company, and Freelance would arrange an independent contractor to perform services for that client company. The services performed by the independent contractor for the client company would be as Freelance’s delegate, and the contractors were the beneficiary of a trust that Freelance set up

Were the individual’s contractors or employees for payroll tax purposes?

Freelance designed an in house criterion to assess whether individuals were independent contractors. One of the factors in this criterion included whether the independent contractor functioned through a company. Those accepted as independent contractors by Freelance would be invited to become a beneficiary of a trust.

When an independent contractor would perform services for a client company, as Freelance’s delegate, Freelance would invoice the client company for those services. The Freeland Trust No. 1 would then distribute the amount of the invoice to the independent contractor, less Freelance’s fee, as an advance of the Trust.  It was this distribution that was characterised by the Court as “taxable wages”, and thus subject to payroll tax.

The Judgement is very long and traverses a number of technical areas, which I will not descend into.

This case highlights the importance of ensuring that your business is taking into consideration all “taxable wages” for the purposes of payroll tax. Taxable wages are generally those wages that are paid to an employee.  However, in many instances “contractors” can also be deemed employees under the relevant state Payroll Tax Legislation, which is often very complicated.

This case highlights the importance of considering all aspects of the legislation when determining whether a worker is an employee or an independent contractor. The Court states clearly that simply because a worker retains his or her own corporate structure does not mean they are independent contractors. Unfortunately, there is no hard and fast rule for determining whether a worker is an employee or an independent contractor.

If you are unsure as to whether you are engaging employees or independent contractors please do not hesitate to contact me. It is essential to get it right, as getting wrong can be very costly.

The information provided in this article is for general information and educative purposes in summary form on legal topics which is current at the time it is published. The content does not constitute legal advice or recommendations and should not be relied upon as such. Whilst every care has been taken in the preparation of this article, FC Lawyers cannot accept responsibility for any errors, including those caused by negligence, in the material. We make no representations, statements or warranties about the accuracy or completeness of the information and you should not rely on it. You are advised to make your own independent inquiries regarding the accuracy of any information provided on this website. FC Lawyers does not guarantee, and accepts no legal responsibility whatsoever arising from or in connection to the accuracy, reliability, currency, correctness or completeness of any material contained in this article. Links to third party websites or articles does not constitute any endorsement or approval of those sites or the owners of those sites. Nothing in this article should be construed as granting any licence or right for you to use that content. You should consult the third party’s terms and conditions of use in relation to any third-party content. FC Lawyers disclaims all responsibility and all liability (including liability for negligence) for all expenses, losses, damages and costs you might incur as a result of the information being inaccurate or incomplete in any way. Appropriate legal advice should always be obtained in actual situations.


Prefer to get in touch?

With offices in Brisbane, Sunshine Coast, North Queensland and Sydney, our team is well equipped to provide both advice and support across a broad range of legal areas.

Free call 1800 640 509
  • This field is for validation purposes and should be left unchanged.