Chain of on-hire for payroll tax

A chain of on-hire exists when an employment agent on-hires a service provider to another employment agent, who hires out the service provider to an end-user client. Generally, only one agent in the chain is liable for payroll tax. This is usually the agent closest to the end-user client.

If the agent closest to the end-user client does not pay payroll tax or is under the threshold, other agents in the chain may be liable.

There is no separate payroll tax form for reporting chain of on-hire in Queensland. The employment agent responsible for payroll tax in the chain of on-hire arrangement reports the taxable wages in their returns.

In this example:

• Purple Pty Ltd (the end-user client) engages Yellow Pty Ltd as the primary agent.
• Yellow Pty Ltd engages Blue Pty Ltd as the secondary agent.
• Blue Pty Ltd engages the service provider for Purple Pty Ltd.

Under this chain of on-hire, Purple pays $500 to Yellow. In turn, Yellow pays $400 to Blue who then pays $200 to the service provider.

A strict application of the employment agent provisions would have the following outcome:

• Yellow would be taken to be an employer under section 13H of the Payroll Tax Act 1971 and the payment of $400 to Blue would be taken to be taxable wages under section 13J of the Payroll Tax Act.
• Similarly, Blue would also be deemed to be an employer and the payment of $200 to the service provider would be deemed as taxable wages.

However, under the general practice set out above, Yellow (the employment agent closest to the end-user client (Purple ) would usually be liable for payroll tax on the $400 paid to Blue.