NSW Court of Appeal expands reach of payroll tax employment agency provisions - High Court appeal denied

On 8 October 2026, the High Court refused the taxpayer’s application for special leave to appeal against the decision of the New South Wales Court of Appeal in SKG Cleaning Services Pty Ltd v Chief Commissioner of State Revenue [2026] NSWCA 122 (SKG).

The High Court dismissed the application for special leave, on the grounds that SKG’s application did not raise any question of law of public importance, and had insufficient prospects of success. Accordingly, the decision of the NSW Court of Appeal (the judgement of Leeming, Ball and Free JJA) that SKG’s cleaning contracts were employment agency contracts, remains authoritative.

In SKG, the Court of Appeal reaffirmed the broad operation of the employment agency provisions in the Payroll Tax Act 2007 (NSW) (Act) and confirmed that many outsourced cleaning arrangements can be subject to payroll tax, even where the client has little or no direct control over the workers performing the services.

The decision is relevant not only to cleaning businesses, but also to a wider range of organisations in industries that commonly engage subcontractors, such as facilities management, security, maintenance, labour hire and other service industries.

What are the employment agency provisions?

The employment agency provisions are set out in Division 8 of Part 3 of the Act and are enlivened when a party (the employment agent) procures the services of another person (the worker or service provider) for a client of the employment agent. The provisions are anti-avoidance measures designed to prevent payroll tax being avoided through arrangements where labour is supplied to a client of the employment agent through an intermediary (the worker/service provider) rather than by direct employment.

Broadly, where an entity procures the services of a worker for a client under an "employment agency contract":

• the procuring party is deemed to be the employer;

• the worker is deemed to be the employee; and

• payments to the worker may be treated as taxable wages.

Whether a contract falls within these provisions has been the subject of significant litigation in recent years, including the case of Chief Commissioner of State Revenue v Integrated Trolley Management Pty Ltd [2023] NSWCA 302 (Integrated Trolley).

The Court’s decision and distinction from Integrated Trolley

SKG’s appeal concerned cleaning businesses that provided cleaning services to commercial and government clients using subcontractors. The Chief Commissioner assessed payroll tax on payments made to those subcontractors on the basis that the relevant cleaning contracts were employment agency contracts.

The Court of Appeal unanimously dismissed the appeal and upheld the assessments.

SKG argued that Integrated Trolley established that an employment agency contract requires a significant degree of client "control and direction" over the workers, similar to an employment relationship. They characterised their contracts as "no control" or "no indicia" contracts because the clients generally:

• could not direct how the cleaning work was performed;

• could not supervise the cleaners in the manner of an employer;

• had limited control over who performed the work; and

• largely received a contracted cleaning outcome rather than supplied labour.

SKG relied particularly on Basten AJA's statement in Integrated Trolley that employment agency arrangements commonly involve work with "a degree of regularity and continuity" and where the nature of the work is "to a significant degree under the control and direction of the client".

The Court of Appeal found that SKG had focused too narrowly on one factor highlighted in Integrated Trolley, namely the degree to which the client controls how the service provider performs the work. Ball JA said that Integrated Trolley did not establish control as the decisive test but rather, the decision remained firmly grounded in the earlier authorities of UNSW Global Pty Ltd v Chief Commissioner of State Revenue [2016] NSWSC 1852 and Chief Commissioner of State Revenue v E Group Security Pty Ltd [2022] NSWCA 115.

Instead, the correct enquiry is the broader test of whether the services are provided "in and for" the client's business. This requires consideration of the connection between the supplied services and the client's ordinary business activities.

A particularly important distinction drawn by Ball JA is between:

• control over how the work is performed; and

• control over the nature of the work being performed.

The Court of Appeal noted that in Integrated Trolley, Basten AJA referred to the extent to which the client controlled the nature of the work, not necessarily the manner in which workers carried out each task. This is a significant shift in emphasis.

Under SKG’s approach, the enquiry becomes similar to an employment law question about supervision and direction.

Following the Court of Appeal’s decision, the enquiry is whether the client determines:

• what work is required;

• when it is required;

• where it is required; and

• how it integrates into the operation of the business.

Why were SKG’s cleaning contracts caught?

The Court of Appeal found that:

• SKG’s clients required regular and ongoing cleaning services;

• the cleaning work was closely connected to the day-to-day operation of SKG’s clients' businesses;

• the work was performed on a continuing basis; and

• absent outsourcing, the work could reasonably be expected to be performed by employees.

These factors were sufficient to establish that the cleaning services were being supplied "for" the clients' businesses, even where the clients did not control how the cleaners carried out their tasks.

What changed?

The most significant aspect of the decision is the Court of Appeal’s treatment of client control. The decision in SKG reduces the significance that practitioners have often attributed to the “control and direction” discussion in Integrated Trolley.

Many taxpayers have historically argued that a contract should only be an employment agency contract where the client exercises a significant degree of supervision or direction over the worker, similar to an employment relationship.

The Court of Appeal rejected that approach. It held that the degree of control exercised by the client is only one factor and is not decisive.

Instead, the key question is whether the services are supplied "in and for" the client's business, with a focus on the connection between the services being supplied and the ordinary activities of the client's business.

Practical implications for businesses

The decision confirms that payroll tax risk cannot be assessed solely by reference to traditional employment indicia such as supervision, direction or control.

Businesses that engage contractors or subcontractors should instead consider:

• whether the services are integrated into the client's ordinary operations;

• whether the services are ongoing or continuous;

• whether the services could ordinarily be performed by employees; and

• whether the arrangement falls within the broad employment agency framework.

Industries that may be particularly affected include cleaning, security, facilities management, property services, maintenance and other outsourced operational service providers.

Key takeaway

As SKG’s application to appeal to the High Court has been dismissed, the decision of the Court of Appeal is authoritative.

The Court of Appeal has confirmed that the employment agency provisions extend well beyond traditional labour hire arrangements. The decisive question is not who controls the worker, but whether the worker's services are supplied as part of the ordinary conduct of the client's business.

Businesses that rely on contractor-based service delivery models should review their payroll tax exposure in light of this decision and consider whether existing arrangements could be characterised as employment agency contracts under the Act.

Please contact the writers if you have any questions about the employment agency provisions or any other payroll tax enquiry. 

Authors: Lisa To & Emma Swanson

 

This publication is intended as a source of information only. No reader should act on any matter without first obtaining professional advice.