PAYG Withholding: Registering For Contract Workers?
Figuring out PAYG withholding obligations can be complicated. Read on to learn about your responsibilities when withholding PAYG tax from contractors.
As a general rule, you do not have to withhold “Pay As You Go” PAYG tax from contractors unless they have a voluntary agreement with you, or if you run a labour-hire firm. Therefore, you may not need to register for PAYG withholding if you only employ contract workers.
What is PAYG Withholding?
PAYG withholding is where you withhold tax from payments you make to individuals. These payments include those made to some suppliers, employees and certain workers with which you have a voluntary agreement. PAYG withholding exists to assist these individuals with paying their tax. You have certain financial and reporting responsibilities you need to comply with.
Why Register for PAYG withholding?
You have to register for PAYG withholding if any of the following apply to you:
- You employ employees
- You’re paying businesses that don’t have or don’t quote an ABN
- You employ contractors or workers that have a voluntary agreement with you for PAYG withholding
- You run a labour-hire firm
PAYG registration is the first step in meeting your PAYG withholding requirements. You will then be in the ATO’s system, and able to proceed with other reporting and accounting requirements. Importantly, you should register before you need to begin the withholding.
You can register for PAYG while registering for your ABN or ACN by using Lawpath’s company registration application. If you already have an ABN you can add PAYG registration to it through the ATO Online Business Portal. To complete this, you need an administrator AUSkey. You can also register through your registered tax or BAS agent.
Registration for Employees
If you have employees you must register for PAYG Withholding. This is to ensure that you can begin to withhold tax from payments you make to them. This will assist your employees to keep up with their tax obligations.
Registration for Contractors
You don’t have to withhold PAYG tax from contractors unless you have decided together to create a voluntary agreement. This is the only circumstance in which you would need to withhold from the contractor’s payments. Therefore, you do not need to register for PAYG withholding if you only employ contract workers unless a voluntary agreement exists. This is not true if you run a labour-hire firm.
Registration for Labour Hire Firms
A labour-hire firm is where you arrange for individuals to do work, or carry out services directly to clients. You are in charge of paying the worker to work or carry out the service and the workers are not employees of the client. You have to register for PAYG withholding if you run a labour-hire firm. This is regardless of whether the individuals doing the work are your employees or independent contractors. There are various names for ‘labour-hire’ firms. These include recruitment services, employment agency or contract management. If you believe you are running any of these, you must register for, and withhold PAYG tax amounts.
If you have any questions about PAYG withholding or employing contractors feel free to get in touch with one of our employment lawyers.
Parissa is a recent Bachelor of Laws/Bachelor of Arts graduate from the Australian National University. She is completing her Practical Legal Training at Lawpath. Her interests are legal technology, employment law and the accessibility of legal services.