​​​​​​​​​​Many businesses have replaced employees with contractors.  Payments made to these contractors may also be subject to payroll tax. 

In the first instance, it needs to be determined if the person performing the work is a common law employee or a contractor. If the person is a contractor, amounts paid to the contractor constitute taxable wages unless one of the relevant contract exclusions apply.

Employee or contractor?

The term ‘employee’ is not defined in the Payroll Tax Act 2008 and therefore takes its ordinary or common law meaning. The courts have established a number of principles that assist in determining whether a worker is a common law employee.

Factors that have been considered by the courts in determining whether a worker is an employee include:

  • control and direction;
  • contract and practical relationship;
  • contracts to achieve a ‘given result’;
  • independent business;
  • power to delegate;
  • risk;
  • provision of tools and equipment; and
  • other indicators.

If a worker is not a common law employee, it does not necessarily mean that payments made to them are not subject to payroll tax. The definition of wages in the Act also includes amounts paid or payable to contractors under the contractor provisions detailed below.

​Refer to the payroll tax Contractors rulings.

Allowances and reimbursements
Relevant contracts​​​​​ 

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