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.
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.