Payroll tax. Nobody's favourite tax: a tax on employing people. You would at least expect it to stop at your employees.
It does not. This week the NSW Court of Appeal held a group of cleaning companies must pay payroll tax on their subcontractors' invoices. It also spelled out what escapes.
SKG Cleaning Services Pty Ltd v Chief Commissioner of State Revenue [2026] NSWCA 122
What Happened
First, the basics. Under the employment agency provisions (ss 37-40, Payroll Tax Act 2007 (NSW)), a business that procures the services of workers “for a client” is taken to be their employer, and what it pays them is taken to be wages. The courts read “for a client” as in and for the client's business [45].
SKG and Ezko clean offices, retail and government premises, mostly through subcontractors. Their defence to the assessments: the contracts said what to clean and when, but gave clients no control over who did the work or how [8]. No control, they argued, no employment agency contract.
Why So Wide - and Where It Stops
Ball JA (Leeming and Free JJA agreeing) rejected control as the test: focussing on it is “an overly narrow interpretation of the section” [47]. The provisions are an anti-avoidance measure [48]. The relevant question [49]: in the normal course of events, would the work be done by the client's own employees if it were not outsourced? These clients' premises needed regular, continuous cleaning; without a contractor, they would employ cleaners [55]. Every contract in issue was an employment agency contract [54].
Now the limit - narrower than most assume. It is not enough that the work sits outside the client's core business. Cleaning was not the core business of any client here, and every contract was caught [35]. What escapes is work so separate from the client's ordinary operations that the client would not normally staff it at all: the Court pointed to matters such as how specialised the service is and how rarely it is needed [56]. Its example: the external windows of a high-rise. The nightly office clean is inside the net. The abseil crew a few times a year is outside it. That recognition is new: Integrated Trolley [2023] NSWCA 302 at [54] had called characterising cleaning and security services as outside the client's business “suggestive of error”.
The Practical Takeaway
Drafting will not save a routine contract. Strip every control clause you like; if the client would otherwise employ someone to do the work, expect it to be caught.
Two questions do most of the work. Is the service specialised, beyond what the client's own staff would do? Is it occasional, not regular and continuous? Both feed the question [49], [56]: would the client normally employ someone for this work? If clearly not, the contract can sit outside the provisions.
Which of your clients' contracts pass the high-rise window test?
General information only. This note was written as at 20 May 2026 and the law may have changed since. It is not legal or tax advice, does not take account of your circumstances, and must not be relied upon as a substitute for advice on your own matter.