Eligibility ‘ When will the Employment Agent Rules not apply?
It is the generally understood position that employment agents are liable for payroll tax on workers procured for clients of the employment agency. A recent case shines a light on the employment agency rules and provides a favourable outcome for certain types of transactions.
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A recent case UNSW Global Pty Ltd v Chief Commissioner of State Revenue  NSWSC 1852 examined what type of transactions are intended to be covered by the employment agency rules found in the NSW Payroll Tax Act 2007 .
In the particular, UNSW Global procured persons to:
- act as expert witnesses in matters (such as litigation) where an expert opinion was required; and
- act as an expert in ‘domestic consulting’ assignments entered into by UNSW Global where an expert report was the substance of the consulting assignment.
UNSW Global contracted with the party requiring the expert opinion and separately contracted with the expert. The expert was accepted as an independent contractor and not an employee of UNSW Global.
The NSW Office of State Revenue sought to impose PRT on payments made by UNSW Global to the experts on the basis that the employment agent rules in s. 37 of the NSW Payroll Tax Act 2007 applied.
Section 37 provides that an ‘employment agency contract’ is a contract under which a person (the employment agent) procures the services of another person (a service provider) for a client of the employment agent.
Where the conditions of s. 37 are met the employment agent is taken to be the employer and amounts paid by the employment agent to the service provider are taken to be wages for PRT purposes.
In this case the argument focused on whether s. 37 applied merely where the employment agent procured the services of persons for the benefit of its clients’ businesses or whether the work done for the client was required to be in the conduct of the client’s business.
Much of the argument revolved around the historical development of the Payroll Tax legislation and specifically the reason for and role played by the employment agency contract rules.
In an historical context, the employment agency rules were introduced to deal with a deficiency in former PRT legislation, whereby temporary employees were able to be supplied by employment agents’ to clients of the employment agents without a PRT liability arising.
Parliamentary material (in NSW and Victoria) announcing the new employment agency contract rules expressly confirmed genuine independent contractors supplying services to a client through an intermediary such as employment agent were not intended to be covered by the new rules and instead would continue to be subject to the existing relevant contract rules (which provide a number of exemptions to ensure payments to independent contractors are generally not subject to PRT).
In seeking to impose PRT on UNSW Global for the transactions in question, the NSW Office of State Revenue sought to test whether, despite the words of s. 37 appearing to capture the arrangements under consideration, the scope of s. 37 should be limited to the type of transactions for which the rules had been introduced/intended (being workers who provided employee-like services for a client’s business albeit through an employment agent).
The Court found in favour of UNSW Global and interpreted s. 37 in a way that requires the work being done by the service provider to be in the business of the client and not merely for the benefit of the client’s business. This interpretation should ensure an independent contractor providing services of that contractor’s business through an employment agency will not trigger the s. 37 rules.
It will be interesting to see how widely this decision may impact other employment agency-type scenarios (where PRT is currently being applied).
From a TaxEd member perspective, another issue always worth noting is the possibility that, for PRT exempt employers, their PRT exemption flows through to an employment agent reducing supply costs.
Disclaimer: This article is based upon information available as at the time of publishing and may be subject to change.