Payroll tax and contractors in Western Australia

Payroll tax and contractors in Western Australia


How do I know whether to include certain workers’
wages in our payroll tax return, when I’m not sure if they’re an employee or an independent
contractor? If you’ve ever been confused about who is
a contractor when you complete your payroll tax return, watch the following video to help
you. Understanding the difference is key to determining if you need to include their wages
in your payroll tax return. I decided to go and give Mary from Paperclip Heaven a helping
hand. You may think that someone having an ABN or
operating through a company, partnership or trust makes them a contractor. Doesn’t it? No. You might think having their own tools
or having a written contract in place makes them one. Yep, I’m pretty sure that makes them a contractor. In fact, none of these things alone will determine
if someone is a contractor for payroll tax purposes. What? The wider relationship needs to be examined.
It is important to note that Western Australia has a different way of determining who is
a contractor versus who is an employee, when compared with other States and Territories
in Australia. Even if they’re deemed to be a contractor
for ATO purposes, they may not be for payroll tax purposes. I’ve certainly made a few of those mistakes.
So for payroll tax, how do we decide who is a contractor? You need to look at the totality of the relationship
when making a decision. Western Australia has six common law tests
established by case law and it’s important to consider all of the tests before making
a determination. It is a common mistake of many employers to look at some of these tests
in isolation, which often leads them to drawing incorrect conclusions. Incorrectly categorising
an employee as a contractor can lead to underpaid payroll tax and possible penalties being applied
later. In any given relationship between a principal
and a worker, some of the six tests we’ll examine today may indicate that a contractor
relationship exists while other tests may indicate an employee relationship exists.
Where this occurs, a determination should be based on all aspects of the relationship. When you say ‘the principal’, is that
like my old school principal, Mr Canebolt? No, not that type of principal. The principal
is the person or business who engages the worker. Oh ok, thanks. So what are the six tests you’ve
mentioned? The first test is called contract versus practical
relationship: if there is a contract in place, is what’s contained in it actually happening?
State Revenue can disregard clauses within a written contract where they do not reflect
the day-to-day reality of the relationship between the principal and the worker. Oh, I didn’t know that. I’ll have to take
another look at some of our contracts to make sure they’re accurate, there have been a
few changes in our workers’ conditions lately. The
second test to consider is whether or not
the contract is to achieve a given result. Is the result or outcome known at the start
and has a price been agreed? Is the lifespan of the work finite and known at the outset?
Achieving a given result generally means the focus is on the delivery of an agreed task
or outcome, to a certain standard, within a set timeframe; rather than labour services.
If someone is providing ongoing labour services, this is not an agreed outcome. I recently hired a tiler to retile the kitchen
of my GP clinic. The tiler’s quote covered everything that was included as part of the
job and once I paid the deposit, the tiler started work. Although the tiler agreed to complete the
job within two weeks, he could work the days and times he wanted. In fact, the guy they
sent was working on some other jobs at the same time as mine and would sometimes use
a day here or there to go surfing with his mates. That didn’t worry me as he still
finished the tiling job by the agreed date. Once the job was completed, I didn’t need
him working here anymore, and I was glad to get my kitchen back. Thirdly, you need to consider control and
direction. Is the worker supervised? Do they have power over the hours they work? Do they
need to report to the employer on their progress? Do they have discretion over their daily work
tasks? If the principal has the right to control the worker’s activities, that would be considered
as exercising control. Whether they do or not is irrelevant. I work from 9 to 5, Monday to Friday. My supervisor
tells me what design projects I need to work on and we regularly meet to discuss my progress.
When I need time off work, I have to get approval from my supervisor first. The
fourth test is, does the worker operate an
independent business? Consider, does the worker have multiple sources of income and no reliance
on any one source of work? Do they bear the risk of making a loss? Does the business have
significant business expenses? For example does it employ staff in its own right, lease
the business premises or have business related loans such as purchases of heavy equipment?
Do they bear the liability for poor work or injuries? Can the business generate goodwill
and be sold? I’ve had a couple of quiet months lately,
things have really started to slow down. I hope things pick up soon because the bills
keep rolling in. I have to pay loan repayments on my truck and equipment and pay rent on
my warehouse, so it’s important that my quotes cover all of these overheads. The
next test is, does the worker have the unrestricted
power to delegate their work to another person without the approval of the principal? When I got the job at Doctor Chen’s clinic,
they said they found me through an ad in the local paper. I was on another job at the time,
so I subcontracted it out. After it was finished, they gave us a call and said there were a
few cracked tiles. Well, I went straight back and fixed it. They didn’t care who did it
and you know how it is, if you want something done properly, you’ve got to do it yourself. The final test is, are the services performed
by the worker integral to the business? That means, is the job they do part of the core
function of the business? Are there other employees that perform similar work? While
any individual worker may not be integral themselves, you need to consider: would the
business be negatively impacted if their duties were not performed? I work full-time for ABC Design, as an interior
designer. I like how I get to participate in the design projects ABC Design takes on
for its clients and I enjoy working with other designers in their team. The important thing to remember is, with every
worker, an employer must look at all six tests when making a determination as to whether
a worker is an employee or a contractor for payroll tax purposes. You must look at the
totality of the relationship. There really is a lot to consider when deciding
if I have a contractor or an employee working for me. What do I do if I still can’t decide
after applying all of these six tests? If you need to get a professional opinion,
we have a questionnaire to help you compile all the information you’ll need to obtain
a determination. To find further information about the six tests, refer to Revenue Ruling
PT 6, available on the Department of Finance website. The Office of State Revenue has published
a payroll tax employer guide. This is a comprehensive resource about payroll tax in WA, all in one
interactive, easy-to-use document. You can download the payroll tax employer guide from
our website. The Office of State Revenue also offers free
information seminars relating to payroll tax. To find out when the next session is, head
over to the Customer Education page on the Department of Finance website. Thanks for joining us. See you again soon.


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