A Queensland decision in Compass Group Education Hospitality Services[1] concerned employment agents who argued that because their clients were exempt from payroll tax, wages paid to their employees for providing services to their clients were not subject to payroll tax.

In this case, wages paid by 2 organisations were exempt from payroll tax. One was a charitable institution running a non-tertiary educational institution and the other operated a public hospital (Clients).  Both contracted a for-profit company (Company) to provide services, such as catering, cleaning and laundry services at their establishments.  The Company was to supervise staff and require that they comply with occupational health and safety issues in return for being reimbursed for all its costs involved in their performance; those costs including wages and payroll tax.  It was also paid an annual performance fee determined according to whether it met various performance indicators.  The Company entered into employment contracts with its own workers to provide the services at the school and hospital respectively, at a specified hourly rate of pay, and the workers were required to observe the Client’s reasonable working conditions and policies and procedures.

The Company contended that they had procured the services of employees for their Clients under agreements which met the definition of “employment agency contract” in the Payroll Tax Act and were entitled to be relieved from payroll tax liability.

The Court found that Division of the Payroll Tax Act was not intended to apply to common law employees, and the expression “procure services of another” was correspondingly not intended to apply in the circumstance where an employer directs, or even engages, an employee to provide services for a client.

The Court found in favour of the Commissioner and payroll tax was payable by the Company.

The New South Wales legislature in 2017 determined that more extensive protection from payroll tax consequences should be given to common law employers which would have permitted the exemption, but this has not been afforded in Queensland.

[1] Compass Group Education Hospitality Services Pty Ltd & Anor v Commissioner of State Revenue [2020] QSC 184