Do I Pay Payroll Tax On Contractors? Being A Real Contractor Is Not The Test

Often yes. Do I pay payroll tax on contractors is a question founders answer by checking whether the person is genuinely self-employed, and that is the wrong check. State payroll tax never runs the employee test, and every rule and figure below is New South Wales. It asks whether the work reached you under what the legislation calls a relevant contract, and Revenue NSW says those payments are then liable unless an exemption applies.

Human Resources Director reported on 4 November that the High Court dismissed Uber’s appeal against New South Wales payroll tax assessments, leaving about $81 million owing on fares passed to drivers. That figure is the outlet’s reporting rather than a judgment we read.

This is general information, so get advice on your own arrangement. Outstaffer sells a fix, so take this as disclosure: moving a long-running contractor onto proper employment is a service because the trap is common.

Payroll tax asks a different question from the employee test

Division 7 of Part 3 of the Payroll Tax Act 2007 (NSW) catches a contract under which a contractor supplies you with the services of a worker. Yours can invoice through a company, carry their own insurance, work for four other clients and pass every test of independence. None of that lifts it out.

The five questions that decide whether a contractor is really an employee still matter for Fair Work and super. They are not what a revenue office looks at.

What counts as a relevant contract?

An agreement by which a contractor supplies an employer with a worker, who may be the contractor or somebody they engage. Revenue NSW sets this out, last updated 3 June 2026.

What a contractor costs once the ninety-day clock runs out

The exemption founders rely on without knowing it is section 32(2)(b)(iii), which excludes a contract where the contractor worked no more than 90 days in a financial year. Revenue NSW adds the two conditions that do the damage. Any time worked in a day counts as a full day, and the days need not be consecutive.

Half an hour on a Tuesday morning is a day.

How many days is two days a week?

One day a week is 52 days and the exemption holds. Two days a week is 104 and it does not. The ninety-first day lands in the forty-sixth week, which for a July start is mid-May.

Take a contractor at $1,200 a day, two days a week. The year’s payments are $124,800. New South Wales charges 5.45 per cent on Australian wages above a $1,200,000 threshold for 2026-27, so above that line the contract adds $6,801.60. The exemption excludes the contract, not the days: Revenue NSW reads 80 days under one contract plus 50 under another as 130 and denies it.

Which payroll those wages run through is its own question.

The 180-day test looks at the work, not the worker

Revenue NSW reads section 32(2)(b)(ii) as excluding a contract for a kind of service your business ordinarily needs for less than 180 days a year. Seasonal work qualifies. Revenue NSW’s own failing example is a building business that employs an accountant and also engages an accounting contractor three days a week. It fails: the business needs accounting all year.

Read that one as your own back office.

Related reading

• Your Contract Says Contractor. The ATO Looks At Two Other Things.
• Can You Onboard Contractors Through An EOR?

The honest counter, and what I would do

None of this touches you until your Australian wages pass $1,200,000, a line you cross on the way up rather than start above. The exemptions are real rather than decorative, and a specialist called in twice a quarter is exempt by design.

The trap is narrower than the panic and worse than the comfort: the contractor who started as overflow and became furniture, still invoicing after three years, on work needed every week.

Count the days before a revenue office does. If the answer is over 90 and the work is ordinary to your business, you do not have a contractor question. You have a job you have not filled. Decide which, then hire it properly and put it on a payroll, here or in a market where the role can be done well. Payroll tax on contractors surprises only those who never counted.

How long has your longest-running contractor been on the books?