PAYG Payee Type

Under pay as you go (PAYG) withholding, you must give each of your employees, workers and other payees a payment summary showing the payments you have made to them and the amounts you withheld from those payments during a financial year.

According to the requirements of the Australian Taxation Office (ATO), the following types of withholding provisions exists for payees who are required to have tax withheld from their earnings:

The Individual Non-business withholding provision applies to payees to whom the following conditions apply:

• the payee is not hired as an independent contractor
• the payee is not hired under a labour hire arrangement.
• the payee is a working holiday maker

The Labour Hire provision applies to payees who are hired under a labour hire arrangement. For information about what constitutes a labour hire arrangement, refer to the following topic on the ATO website:

https://www.ato.gov.au/business/payg-withholding/payments-you-need-to-withhold-from/labour-hire-firms-and-their-workers/

When creating a new payee it is important that the payee is classified under the correct withholding provision based on the terms and conditions of their employment contract. Therefore, it is recommended that you refer to a payee's employment contract to determine the correct withholding provision that applies to a payee.

It should also be noted that the Individual Non-business and Labour Hire provisions do not affect the rate at which tax is withheld. However, they do affect the type of payment summary that the payee will receive at the end of a financial year. The payment summary types that are issued depending on the withholding provision are as follows:

• Individual Non-business - Individual Non-business Payment Summary
• Labour Hire - Business and Personal Services Income Payment Summary

It should be noted that each payment summary type reports payments and withheld amounts differently and can therefore affect a payee's eligibility to claim tax deductions, income support payments and alike. Therefore, it is important that a payee is configured with the appropriate payee type to ensure that the correct payment summary type is issued at the end of a financial year. For more information about the payment summary types, refer to the following topic on the ATO website: https://www.ato.gov.au/business/payg-withholding/payg-payment-summaries/#Typesofpaymentsummaries