If you use contractors in Queensland, you could be liable for payroll tax—even if they’re not employees. Here’s what you need to know to stay compliant and avoid penalties.
Why You Can’t Afford to Ignore the Payroll Tax Contractor Rules
Running a business is hard enough without unexpected tax bills popping up out of nowhere. But that’s exactly what’s happening to Queensland businesses that aren’t across the payroll tax contractor rules.
Even if your contractors have their own ABNs and work for other clients, you could still be on the hook for payroll tax—unless you qualify for one of nine exemptions. And with the Queensland Revenue Office (QRO) ramping up its data-matching and audit programs in 2025, this is one compliance area you really don’t want to ignore.
🚧 Understanding the Payroll Tax Contractor Rules in Queensland
The payroll tax contractor rules are part of Queensland’s broader strategy to harmonise Payroll Tax Rules between Australian States. While the thresholds remain varied between the states, the rules are now aligned. Under these rules, contractor payments are deemed wages unless you can apply one of the listed exemptions.
Translation? You need rock-solid documentation and a working knowledge of the nine contractor exemptions to stay out of trouble.
🤔 Not Sure If You’re Liable? Ask These Questions First
Before you dive into exemptions, start with this quick decision framework:
- Is the contractor actually an employee? If yes, payroll tax applies—no questions asked.
- Is there an employment agency involved? If yes, payroll tax is paid by the agency.
- Does the contract include labour? If no, the rules don’t apply.
- Does one of the nine exemptions apply? If yes, you’re good (but document it!).
If none of these give you a clear answer, keep reading.
💡 Nine Payroll Tax Contractor Exemptions You Should Know
Avoid Payroll Tax with the Right Contractor Exemption
Each of these exemptions is designed to keep genuine contractor relationships payroll tax-free—if you follow the rules and document properly.
Labour Ancillary to Goods or Equipment
If the main purpose of the contract is the supply of equipment or goods, not labour, you might be exempt.
Example: Hiring a crane with an operator—the crane is the focus, not the labour.
Services Not Ordinarily Required
This is a big one. If the service isn’t something your business normally needs, and the contractor earns less than 40% of their income from you, you may be exempt.
I had a client—a local dental clinic—hire a mural artist to paint a feature wall. Not a usual business activity, and the artist works with dozens of clients. This is completely exempt.
90-Day Rule for Individual Contractors
If a contractor works less than 90 days for you in a financial year, they’re exempt.
But here’s the kicker—night shifts that cross midnight count as two days. A hospitality taxpayer was caught by this. What they thought was “45 night shifts” turned into 90 days. Ouch.
180-Day Rule for Service Types
This one applies to the type of service—not the individual contractor. If you don’t need that service more than 180 days a year total, you’re likely exempt.
Contractor Engages Others
If the contractor brings in others to complete the service (not admin), they may be exempt. But bookkeeping, admin, or marketing support doesn’t count.
Services to the Public (Commissioner’s Discretion)
If the contractor works for multiple clients and averages less than 10 days a month with you, you’re good. Otherwise, you’ll need to apply directly to the QRO.
Owner-Drivers
Contractors using their own vehicle to deliver goods (like couriers or freight drivers) may be exempt, as long as they’re covering all costs themselves.
Insurance Contractors
Only applies to agents selling insurance under an AFS licence. Niche—but important for financial services.
Door-to-Door Sales
Think of independent reps selling household goods to the public. Rare, but still in the legislation.
📑 Contractor Deductions: Don’t Get This Wrong
Let’s talk numbers.
When a contractor provides materials and labour, you can’t just deduct what they tell you they spent on materials. You have to use QRO’s approved materials deduction rates.
For example:
- Painting: 5%
- Tiling: 65%
- Cleaning: 5%
of the total invoice can be allocated to materials.
Important: You must deduct GST before applying the rate. And yes, you’ll need to keep all the tax invoices and supporting documents for 5 years.
Need the full list? You can find it on the QRO’s official site 📎 https://qro.qld.gov.au/payroll-tax/liability/contractor-payments/deductions/
🔍 Common Mistakes with Payroll Tax Contractor Rules
Avoiding Payroll Tax Traps in Small Business
We’ve seen it too many times:
- “They’re a contractor, so I’m safe” ❌
- “This only applies to sole traders” ❌
- “I can just deduct the material costs” ❌
These assumptions could cost you thousands in back tax, interest, and penalties. The QRO is actively targeting:
- Construction
- Professional services
- Technology firms
- Businesses with high contractor ratios
🧠 Real Client Story: When Good Intentions Go Wrong
A taxpayer in the construction space—let’s call him Dave—had multiple subcontractors. He assumed their ABNs and separate invoices meant he was exempt.
But he didn’t track their working days… and didn’t realise two landscapers, working on separate projects, crossed the 180-day threshold. By the time the audit rolled around, it was too late.
That one mistake cost him over $50,000 in tax and penalties.
📣 What to Do If You’ve Made a Mistake
Voluntary Disclosure Is Your Best Friend
If you’re worried you may have misclassified a contractor, don’t panic—yet.
QRO encourages voluntary disclosure, and if you do it before an investigation starts, you can avoid penalties altogether.
Even if you’re late, the penalty is reduced from 75% to much lower rates.
📋 Record-Keeping Checklist
For every exemption you claim, make sure you keep:
- Signed contracts
- Scope of works
- Timesheets or site logs
- Contractor ABNs and contact info
- Tax invoices
- WorkCover policies (if required)
📊 Want Professional Help? We’ve Got You Covered.
If all this makes your head spin—you’re not alone. Most small business owners don’t have time to decipher QRO’s contractor rules, let alone manage 5-year records.
👉 That’s where we come in.
At Accountants 2 Business, we review your contractor setup, identify any payroll tax risks, and help you put a plan in place. Whether you need exemption documentation or advice on how to fix a past mistake—we’re here to help.
Book a meeting today:
🗓️ Chat with Janelle
