Payments to contractors under a voluntary agreement

A voluntary agreement is an agreement between a business (the payer) and a contract worker (payee) to bring work payments into the pay as you go (PAYG) withholding system.

Voluntary agreements are a good way to help independent contractors meet their tax obligations.

Usually you do not have to withhold amounts for payments you make to contractors. However, if you have a voluntary agreement with a contractor you must withhold an amount from each payment you make to them as set out in the agreement.

Voluntary agreements cannot be used where the payment is already covered by another PAYG withholding category, such as payments to employees or under labour hire arrangements. A voluntary agreement can cover a specific task or apply to successive arrangements between you and the worker. Either you or the contractor can end a voluntary agreement at any time by notifying the other in writing.

Next steps:

To make a voluntary agreement with a worker, you can use the Voluntary agreement for PAYG withholding form.

The amount you must withhold under a voluntary agreement is either:

  • the contractor's PAYG instalment rate, as notified by us; or
  • a flat rate of 20% (if the instalment rate is not known or is less than 20%)

Both you and the contractor must keep a copy of the voluntary agreement while it is in force and for five years after the last payment is made under the agreement. You do not have to send a copy to us.

See also:

Last modified: 17 Jun 2015QC 27073