Contractors and payroll tax: when an ABN doesn’t help you

“They invoice us with an ABN, so it’s not payroll tax” is one of the most common — and most expensive — assumptions a growing business makes. Having an ABN tells you nothing about whether payments to that person are exempt from payroll tax. What matters is whether the arrangement counts as a relevant contract, and whether a specific exemption applies to it.

The default position: contractor payments are taxable wages

NSW and VIC both apply this rule under section 32 of their (harmonised) Payroll Tax Act 2007; QLD applies the equivalent rule under section 13B of its older Payroll Tax Act 1971 — different section number, same underlying test. If your business pays someone for their labour under a contract for services, that payment is treated as wages by default, unless the arrangement falls into one of a specific list of exemption categories. The starting assumption, in other words, is taxable — the exemption categories are what you have to actively fit into, not the other way around.

The exemptions that actually get used

The three states publish near-identical exemption categories, inherited from the same harmonisation process:

• The 90-day rule. If a contractor provides the same or similar services to your business for 90 days or fewer in a financial year, payments to them can be exempt. Days don’t need to be consecutive — any work performed on a day counts as a full day. Critically, if the contractor goes over 90 days, all payments for the year become taxable, not just the days past the threshold.
• The 180-day rule. This one is tested differently — it looks at whether your business needs that type of service for fewer than 180 days a year in total, across everyone who provides it to you, not the hours of any one contractor.
• Services to the public generally. If the contractor genuinely runs an independent business — servicing multiple clients (typically at least one other, outside any related group) and averaging no more than around 10 days a month for you — payments can be exempt. Revenue offices look at the substance of the relationship — whether the contractor advertises for other work, the range of clients they actually service, whether they use their own equipment and staff, who carries commercial risk, how they quote for work, and who’s liable if the work is defective — not just the invoice.
• The contractor engages their own staff. Where the contractor hires employees or subcontracts some or all of the work themselves — genuinely running a business rather than working personally, and retaining overall contractual responsibility for the outcome — the arrangement can fall outside the relevant contract rules.
• Ancillary to a supply of goods, owner-drivers, and door-to-door or insurance sales are further specific, narrower exemption categories in all three states.

Worked example: the 90-day rule in practice

Consider a hypothetical bookkeeping contractor who works for a small business intermittently across a financial year — a few days here and there as workload demands, rather than a fixed weekly schedule. Say she works 8 days in July, 6 in August, 10 in September, and so on through the year in irregular bursts, with no work at all in some months. The business needs to keep a running tally, not a rough impression — because those days don’t need to be consecutive, and any day with work performed counts as a full day regardless of whether she worked one hour or eight. If the running total reaches 91 days at any point in the financial year — even if that 91st day is a single hour of urgent work in June — the exemption is lost entirely, and every payment made to her that year becomes taxable, including the first 90 days that would otherwise have qualified. This is why the practical discipline businesses need isn’t a year-end check, but a running log kept from the first day of the financial year.

Worked example: the 180-day rule catches what the 90-day rule misses

Now take a café that uses three different casual contractors across the year to cover bar-service consulting — nobody works close to 90 days individually, so each one looks exempt under the 90-day rule taken alone. But the 180-day rule doesn’t look at any one contractor’s hours — it looks at the business’s total need for that type of service, across everyone who provides it. If the café needed bar-consulting services on a combined total of well over 180 days across the year, spread across those three contractors, the 180-day exemption doesn’t apply to any of them, even though none individually came close to a full-time load. This is the exemption most likely to be misjudged, because the natural instinct is to check each contractor’s own hours rather than the business’s aggregate demand for the service.

Common mistakes business owners make here

• Assuming ABN equals exempt. The most common and most expensive assumption — covered above, worth repeating as the single biggest misconception.
• Assuming the 90 days must be consecutive. They don’t — irregular, spread-out work still accumulates toward the total.
• Assuming the 90-day count resets if a different person from the same contracting business shows up. The exemption is tested against the services being provided under the contract, not strictly the individual physically doing the work — don’t assume rotating staff resets the clock without checking.
• Testing the 180-day rule against one contractor’s hours. It’s a test of the business’s total need for that service type, across every provider of it — see the café example above.
• Assuming one day over 90 only taxes the extra day. It taxes the whole year’s payments to that contractor, retroactively.

How this compares across NSW, VIC and QLD

The exemption categories themselves are close to identical in substance across all three states — a direct result of harmonisation — but the legislative reference differs: NSW and VIC cite section 32 of the (2007) Payroll Tax Act, while QLD cites section 13B of its (1971) Payroll Tax Act. Get the citation right for the state you’re dealing with if you’re referencing the rule in correspondence with a revenue office — quoting the wrong state’s section number in an objection or disclosure is an easy, avoidable error. Victoria also publishes a specific “Replacement Method” for estimating days worked where actual attendance records can’t be established, calculated from the relevant award rate with a 20% adjustment — worth knowing if your contractor record-keeping has gaps, since the alternative to a documented day count isn’t automatically in your favour.

Why this calculator doesn’t try to price it for you

Whether any of these exemptions apply depends on facts specific to each contractor relationship — exactly how many days they worked, whether they have other clients, whether they subcontract, how independently they actually operate. That’s not something a calculator can responsibly assess from a yes/no toggle. If you flag contractor payments in the comparison calculator, it shows you that the exposure exists and explains why it’s fact-dependent — it deliberately doesn’t attempt to calculate a deemed wage figure.

What to do next

1. Start a running day-count log for every contractor, from the first day of the financial year, rather than reconstructing it at year end.
2. Assess whether each contractor genuinely operates independently — their own clients, equipment, staff, and who carries commercial risk — rather than just checking whether they have an ABN.
3. For any recurring service type, add up the total days needed across every contractor who provides it, not just each individual’s hours.
4. Identify which specific named exemption category might realistically apply to each arrangement, rather than assuming a general “contractor” exemption exists.
5. Get a specific assessment from your revenue office or a registered tax agent before relying on an exemption for a materially large contractor spend.