Update: Payroll tax on service contracts – regular onsite work

25 June 2019

The Chief Justice of the NSW Supreme Court has held that companies that provide services to their clients and subcontract the work are caught by the “employment agency agreement” payroll tax rules if the actual workers are “integrated” in the client’s business. Working daily onsite at the client’s premises on an ongoing basis was found to be enough for that.

The case was Bayton Cleaning Company Pty Ltd v Chief Commissioner of State Revenue [2019] NSWSC 657 and involved a cleaning company subcontracting office cleaning, amongst other things.

The Chief Justice noted additional factors that would further strengthen the conclusion that workers are “integrated” with the client business as including:

- interaction with or direction from the client’s staff or its customers;

- wearing the client branded uniform, or otherwise not being distinguishable to outsiders from the client’s own staff;

- being allowed to use the client’s staff facilities such as the tea room; and

- if the function being performed was previously undertaken in-house in much the same way by the client’s own employees.

The Chief Justice rejected the test adopted previously by Justice Kunc in JP Property Services which had limited the “employment agency agreement” rules to situations where subcontracted services were core or integral to the client’s business. Conversely that case had held that nightly floor cleaning was not caught by the rules.

The extra sting once the rules are invoked is that the whole amount paid to the subcontracting entity may be subject to payroll tax, including amounts to cover materials, overheads and any mark-up, and not just the amount on-paid to the actual worker.

This is not the last word. A number of other proceedings on the issue have been heard in the NSW Supreme Court and are awaiting judgement.



Andrew White



Graham Warren

Special Counsel