Taxing of allowances and reimbursements paid to workers under a labour hire or on-hire arrangement

The pay as you go (PAYG) withholding system requires a labour hire firm (payers) to withhold an amount from payments made to individuals who perform work or service directly for clients of the labour hire firm, whether or not the worker is characterised as an employee or independent contractor.

Individuals or clients of a labour hire firm are:

• workers under a labour hire arrangement
• on-hired workers
• out-posted workers.

This document outlines the correct withholding treatment of allowances and reimbursements paid to workers under a labour hire arrangement, on-hired or out-posted workers.

To determine whether an individual is considered a worker, refer to PAYG withholding and labour hire firms. For information about the correct withholding treatment of allowances paid to employees, company directors or office holders, refer to Withholding from allowances.

What are allowances?

Allowances are separately identified payments made to a worker for:

• working conditions - for example, danger, height or dirt
• qualifications or special duties - for example, first aid certificate or safety officer
• expenses that cannot be claimed as a tax deduction by the worker, for example, normal travel between home and work
• work expenses that could be claimed as a tax deduction by the worker, for example, travel between work sites.