Handed down on 7 June 2019 and 21 June 2019 respectively, Southern Cross Group Services Pty Ltd v Chief Commissioner of State Revenue [2019] NSWSC 666 (Southern Cross Group Services) and Securecorp (NSW) Pty Ltd v Chief Commissioner of State Revenue [2019] NSWSC 744 (Securecorp (NSW)), have confirmed that where there are multiple employment agents in a chain of employment agents, the Chief Commissioner retains his discretion in determining where the payroll tax liability will fall. The employment agency contract closest to the client (or 'end user') of the services is not relevant in the Chief Commissioner's assessment of tax liability. Importantly, the decisions appear to be at odds with Revenue NSW's ruling PTA-027 which states that the employment agent closes to the ultimate client will be regarded by the Chief Commissioner as the agent who is liable for the payroll tax.

Broadly, the 'employment agency contract' provisions apply to subcontracting arrangements under which a person ('employment agent') procures the services of a worker (a 'service provider') to provide services to the employment agent's clients. The outcome is that employment agents are liable to pay payroll tax in relation to the amounts paid to the service providers.

While the scope of the provisions have long been subject to debate, in recent years, the decisions UNSW Global Pty Ltd v Chief Commissioner of State Revenue [2016] NSWSC 1852 (UNSW Global) and JP Property Services Pty Limited v Chief Commissioner of State Revenue [2017] NSWSC 1391 have assisted with narrowing the operation of the provisions. Under UNSW Global, the existence of an employment agency contract is determined by a consideration of whether the subcontractors comprise or add to the workforce of the client in or for the conduct of the client's business.

Parties involved in the cases

Both Southern Cross Group Services and Securecorp (NSW) concern broadly similar facts, with both entities being in the business of procuring security guards for their clients. Rather than detailing the specific entity names, references to the various entities have been simplified to Client, Mgmt Co, the Security

Contractors (or the Taxpayers) and the Service Providers (i.e. the subcontractors):

• Property managers, operators and other security companies (Mgmt Co) had contracts with property owners (Client) to manage the operational aspects of the businesses.
• Mgmt Co contracted with security businesses (Security Contractors or the Taxpayers) for those security contractors to provide security services.
• The Security Contractors contracted with various security agents (and occasionally, subcontractors again) (Service Providers) to provide services to Mgmt Co (and, therefore, the Client). 

Decisions made that impact employment agency contract' provisions

The Court rejected the submission of the Security Contractors that s 37 is directed at the employment agency contract closest to the end user of the services, being the contract between the Client and Mgmt Co. Both judgments provided the same three reasons for their decisions, being:

1. The legislation makes no reference to the ultimate end user of the providers' services. This term was adopted from the Minister's second reading speech. This additional legislative material should not be used to substitute or override statutory language.
2. 'End user' is an inherently ambiguous term. It can refer to a variety of parties, including the Client but could extend to customers or users.
3. The legislation expressly contemplates the existence of multiple employment agents preventing double taxation in s 41. Therefore, s 37 cannot operate only as between the closest employment agent and end user as this would suggest there is only ever one agent liable for payroll tax.

Accordingly, the Court confirmed the correct assessment for determining the existence of an employment agency contract is that articulated in UNSW Global as 'intended to apply to cases where the employment agent provided individuals who would comprise, or who would be added to, the workforce of the client for the conduct of the client's business'. The conduct of the security subcontractors was held to be indicative of individuals forming part of the client's workforce and therefore the subject of employment agency contracts. The relevant factors favouring the Chief Commissioner being:

• The location of the work (the subcontractors worked on site, which in a previous case, Knight Watch Security Services Pty Ltd v Chief Commissioner of State Revenue, was considered indicative that the service providers were working in the ordinary conduct of the clients' business).
• Wearing of uniforms (for example, the security guards wore client-branded uniforms).
• Work in the ordinary course of the client's business (services necessary for the business, regular/continuous workforce as against particular projects or one-off events).
• Compliance with the Client's direction and instruction, including complying with instructions of a site manager (employed by the Client).
• The work the subcontractors performed could otherwise have been done by the Client's employees.