On 30 June 2026, the NSW Court of Appeal handed down a significant payroll tax decision in SKG Cleaning Services Pty Ltd v Chief Commissioner of State Revenue [2026] NSWCA 122 (SKG Cleaning), unanimously dismissing the taxpayers’ appeal and upholding the payroll tax assessments issued by the Chief Commissioner.

What are the employment agency provisions?

Payroll tax is a largely harmonised State and Territory tax on taxable wages. Accordingly, while SKG Cleaning is a New South Wales decision, it has relevance across most Australian jurisdictions. For payroll tax purposes, ‘wages’ extends beyond ordinary wages to include payments deemed to be wages, including under the employment agency provisions.

Broadly, the employment agency provisions apply to contracts under which a person (employment agent) procures the services of another person (service provider) for a client of the employment agent, and the service provider does not become an employee of the client. Importantly, the provisions only apply to contracts where the services are provided to a client in and for the conduct of the business of the client.

The rules are aimed at countering payroll tax avoidance by parties that would otherwise be employers through intermediary arrangements that, in substance, involve a service provider performing employee-like duties.

If the employment agency provisions apply, broadly, the employment agent is deemed to be the employer, the person performing the relevant work is deemed to be the employee of the employment agent and amounts paid to or in relation to the service provider are deemed to be taxable wages.

Interaction with contractor provisions

The employment agency provisions take priority over the contractor provisions. Under those provisions, payments made to genuine independent contractors can be deemed to be wages for payroll tax purposes (subject to a number of exemptions e.g. if the contractor provides services for less than 90 days in a financial year). The priority rule means that the employment agency provisions can apply even if the payments made by the intermediary would otherwise fall within an exemption to the contractor provisions.

Key Issues in SKG Cleaning

In SKG Cleaning, the taxpayers provided cleaning services to commercial and government enterprises in NSW using subcontractors to undertake the relevant cleaning work. The Chief Commissioner of State Revenue assessed the taxpayers to payroll tax in respect of the payments made to several subcontractors on the basis that the employment agency provisions applied.

The taxpayers challenged the assessments, arguing that they were simply delivering a completed cleaning service and therefore the cleaners were working for SKG, not for the clients' businesses. The NSW Court of Appeal rejected that distinction. It held that the cleaners were performing services in and for the clients to conduct their businesses, notwithstanding that SKG retained contractual responsibility for delivering the cleaning outcome.  

In making this conclusion, the Court considered, among other things:

1. Client control is only one factor; the real focus is whether the services are the type ordinarily expected to be performed in the client's business.
2. Routine and ongoing services closely connected to the client's business are more likely to constitute an employment agency arrangement, whereas specialised or infrequent services may not.
3. Incomplete contracts or insufficient evidence may prevent taxpayers from proving the employment agency provisions do not apply.  

In the circumstances, the contracts with the client businesses, notwithstanding differences in detail, generally required routine cleaning activities that businesses of that kind would be expected to undertake. In making this conclusion, the Court took a broad view of what constitutes the ordinary conduct of the client's business.

Takeaways

• Businesses engaging contractors to provide services for their clients should review their existing contracts to determine whether the payments made to those contractors could attract payroll tax under the contractor provisions or employment agency provisions. Do not presume that the use of labels such as ‘outsourced service’ or ‘subcontractor’ in contracts means that payroll tax does not apply.
• If payroll tax could potentially apply, businesses should consider the potential payroll tax cost when pricing contracts and review the contractual allocation of that cost.  
• Keep complete contracts, schedules, variations and records distinguishing employee work from work performed through subcontracted labour.
• Where historical exposure may exist, quantify potential tax, interest and penalties, and obtain advice about whether a voluntary disclosure is appropriate.

To discuss the impact of SKG Cleaning, the employment agency provisions, or other payroll tax matters, contact Velocity Legal’s tax team.