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Payroll Tax changes, or is it a new Recuitment Agency Tax?

By 18 August 2014 5

On Thursday evening the ACT Legislative Assembly passed the ACT Payroll Tax Reform Bill. This Bill prevents “genuine employers” from being exempt from payroll tax if they pick up contract work through a recruitment agency. Unfortunately, yet again, the ACT Government has done a poor job in formulating policy.

This new policy has the following effect – if a company, sole trader, or partnership:

  1. directly enters into a contract with a client, then the Payroll Tax Threshold applies to them;
  2. enters into a contract via a Recruitment Agency, where at least one director and one employee works on the contract, then the Payroll Tax Threshold applies to them; or
  3. enters into a contract through a Recruitment Agency, where only one company member, or just employees, or just directors work on the contract, then the Payroll Tax Threshold does not apply and they will always have to pay Payroll Tax on the contract.

What were they thinking??? If there was to be any fairness to this legislation it should apply to all business contracts entered into with clients, or it shouldn’t apply at all. This tax is really a peculiar tax on Recruitment Agencies; it should be called the ACT’s “Recruitment Agency Tax”.

The Federal Government engages much of its IT workforce by contracting Recruitment Agencies to find appropriate personnel. These subcontracted personnel may either work directly or be engaged through a company.

Contractors who work directly with the Recruitment Agency are treated as employees of the Recruitment Agency, and are subject to the existing Payroll Tax Legislation.

Companies, who are already subject to the existing company Payroll Tax Legislation, will now be slugged with a Recruitment Agency (Payroll) Tax if they are not large enough to be able to put at least one Director and one employee on the contract, that is, if the contract allows it.

This tax, therefore, disadvantages small struggling companies that are trying to get off the ground and pick up work any way they can.

The overall effect of this tax will be to reduce company profits from Federal Government contracts. This will make it less attractive for interstate companies to bid for Federal Government contracts, reducing supply, and in-turn pushing up the cost of Federal Government contracts in the ACT.

Recruitment Agency margins plus this new Recruitment Agency (Payroll) Tax will add over $20,000 per year to the cost of an average contract. Consequently, it will become prohibitively expensive for the Federal Government to use Recruitment Agencies. Government departments will either need to contract with IT companies directly, or improve their efforts in attracting the highly-skilled contracted IT workforce into the permanent ranks of the Public Service.

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5 Responses to Payroll Tax changes, or is it a new Recuitment Agency Tax?
#1
DeadlySchnauzer11:27 am, 18 Aug 14

I wonder if this will encourage government departments to consider contracting to SMBs directly. Currently it is virtually impossible to pick up small contracts unless you go via a recruitment agency. However SMBs that deal direct now have the added advantage that they are guaranteed to be from 6.75-10% cheaper (depending on agency cut) while still pulling in the same take home pay.

#2
aaa1238:08 pm, 18 Aug 14

Contractors should strike until a compromise is reached.

At the moment, ACT govt, recruiters, and clients refuse to compromise.

The contractor is footing 100% of the bill and will do even for contract renewals for existing contracts.

Let’s all walk off the job until people agree to talk.

#3
paulh10:40 pm, 18 Aug 14

The ACT Government stuffed it up… they didn’t do their homework. The ACT has dis-harmonised its legislation with other states and is now unjustly increasing taxation for ACT’s small businesses.

Found in the NSW’s Revenue Ruling No. PT 004…

“It should be said, at this point, that the legislative changes relating to contractors were designed to make liable only those payments to persons who are, essentially, employees. It was not intended to tax payments made to independent contractors or subcontractors who genuinely offer their services to the public at large. These people are suitably provided for in the exemption provisions of the legislation.”

The ACT doesn’t care about its small businesses in this manner.

From the Victorian Payroll Tax Factsheet of July 2007…

“Contracts will only be exempt where the Chief Commissioner is satisfied that the contractor’s services are ordinarily provided to the public generally in each financial year. In applying this exemption, the Chief Commissioner needs to be satisfied that the contractor provides the services in the course of conducting a genuine independent business, which stands in the market place and actually renders like services to a range of clients in each financial year.”

You won’t find any such caveat in the ACT’s Legislation.

The ACT Government removed its “genuine employer” clause which had a similar function to NSW and Victorian legislative clauses which protect its small businesses. NSW and Victoria didn’t hide this information (the implementation is also in their legislation); if the ACT Government had done its homework it would know this. This change to the ACT’s Payroll Tax Legislation is sloppy, and the ACT probably now has the most business-discriminatory Payroll Tax Legislation in the country.

#4
rommeldog5610:45 pm, 18 Aug 14

aaa123 said :

Contractors should strike until a compromise is reached.

At the moment, ACT govt, recruiters, and clients refuse to compromise.

The contractor is footing 100% of the bill and will do even for contract renewals for existing contracts.

Let’s all walk off the job until people agree to talk.

I can’t see that ever happening.

Now that is passed into law, did the ACT Lib’s support it too ?

Will the ACT Lib’s reverse that decision when/if they are elected in 2016 ?

I suspect not quite frankly. So its more than likely a done deal, I’m afraid.

#5
justsomeaussie7:08 am, 19 Aug 14

State and federal governments need to realise what a rort the recruitment industry is. Once a contractor is in the door, the live work and breathe in the department. The recruitment company sits back and takes 20%-40% of the contract each Month for doing nothing outside of paying the contractor.

Wake up, cut out the middle man and you can hire better contractors and pay them more while paying out less in the margins of a group that has a little value add.

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