Do Contractor Payments Get Hit with Payroll Tax?

Many businesses rely on contractors to keep operations flexible and costs under control.  

Working out if contractors are or are not included in the payroll tax calculation can be complicated to work out. Getting it wrong can mean unexpected tax bills, penalties and cash flow headaches. Knowing when contractor payments attract payroll tax helps you stay compliant while avoiding nasty surprises. 

Contractor Payments and Payroll Tax in Queensland 

In Queensland a contractor payment may be subject to payroll tax if they are considered as wages for tax purposes. The Queensland Revenue Office has “contractor provisions” that are designed to stop businesses from avoiding payroll tax by simply reclassifying employees as contractors. 

This means: 

• Payments to contractors are included as taxable wages unless a specific exemption applies 

• Each contract must be reviewed to see if it falls under the taxable category or is exempt 

When Contractor Payments Are Exempt 

Not all contractor payments are caught by payroll tax. There are exemptions, such as: 

• Genuine contractors who provide services to many different clients, not just your business 

• Short-term work where the contract lasts less than 90 days in a financial year 

• Labour provided for specific purposes like a one-off project or specialised expertise 

• Services provided by a company or trust (though these can still be caught in some cases) 

The rules are detailed and the QRO looks at the nature of the work, the length of the contract and how much control you have over the contractor’s tasks. 

Common Mistakes Businesses Make 

• Assuming all contractors are exempt without checking the details of each contract 

• Treating contractors as employees in practice (eg. set hours, direct supervision) while paying them as if they were independent 

• Failing to keep contracts and records that prove the arrangement qualifies for an exemption 

Best Practices to Stay Compliant 

• Review all contractor agreements each year to check if they may be subject to payroll tax 

• Keep detailed documentation such as contracts, invoices, and records of work performed 

• Seek advice early if you are unsure whether a contractor arrangement will attract payroll tax 

• Train your payroll team to recognise the difference between genuine contractors and those who may be treated as employees for tax purposes 

Not sure if your contractor arrangements could attract payroll tax? 

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