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Australia – Plans to levy recruitment firms with payroll tax criticised

19 June 2014

Andrew Barr, the Treasurer of the Australian Capital Territory (ACT), announced that he is considering delaying his budget changes to payroll tax by a few months, but companies hit hard by the change say that's not enough, reports The Canberra Times.

Online89, a recruitment firm that bids for IT contracts with the federal government said it could be forced out of business by the new tax. Another, IT placement agency Compas said it was locked into more than 150 contracts and could not afford the tax.

Mr Barr plans to bring recruitment agencies into the payroll tax net, so they will have to pay 6.85% once their payroll reaches AUD 1.85 million (USD 1.7 million). To date, they have been exempt, with the consultants they employ treated as sub-contractors rather than employees.

Peter Legge-Wilkinson, Director of Online89, who has 30 to 40 contractors on his books, said many of his contracts were already negotiated so the prices were locked in. He explained that agencies were unwilling to change the contract to cover the new payroll tax, so the only alternatives were for contractors to take a pay cut, or for companies like his to absorb the cost. Mr Legge-Wilkinson said his company worked on small margins and the extra cost could drive him out of business.

A three-month delay would not solve the problem because most contracts were for six or 12 months, and in some cases longer. He has called on the government to delay the change for a year and exclude existing contracts.

John Vassallo, a partner at Compas partner said he had 110 IT contractors. He charged 6% for organising contracts for them with government departments – a margin less than the 6.85% payroll tax. He had more than 150 contracts already in place, so was "between a rock and a hard place''. If the changes went ahead his only choice would be to terminate contracts.

Mr Vassallo said he was not opposed to bringing contractors into the payroll tax rules, but wanted existing contracts exempted. He also pointed to a grim future for more than 300 payroll management companies in the territory, who would lose their business with the change.

Mr Barr estimates that 1,000 contractors across the Australian Capital Territory, mainly in IT, could be affected. He said the government was considering delaying implementation by a few months in response to concerns about the limited time to adjust. 

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