Payroll tax in labour hire is paid by the agency, not the host, and it is one of the on-cost lines that moves the charge rate from state to state. The 2026-27 headline rates run from 4.85% in Victoria to 5.5% in Western Australia, and a line on a rate card that applies one flat percentage to every hour is a pricing convention, not a statement of what each dollar of wages costs.
This guide covers who is liable, the rates in Victoria, New South Wales, Queensland, Western Australia and South Australia, the surcharges that apply above $10 million of payroll, and a worked cost per hour. It does not cover Tasmania or the territories. For the other on-cost lines, see our guide to labour cost per hour.
Who pays payroll tax in a labour hire arrangement
The Victorian State Revenue Office says that under an employment agency contract the agency is deemed the employer, the worker is its employee and the agency must pay payroll tax on the wages it pays. Revenue NSW takes the same view and says the employer agent is liable on all amounts paid to the worker, and the Western Australian guide counts an employment agent as an employer. Where a worker instead contracts directly with the client in a placement arrangement, the Victorian office treats the client as the employer.
Wages for this purpose include payments to the worker and any payment that would be a super contribution if the worker were an employee. The Victorian office says employment agency fees, WorkCover insurance and the GST portion of payments are not wages, so the tax falls on the wage base, not on the provider's fee. Details are on the State Revenue Office page on employment agencies and the Revenue NSW page.
The 2026-27 rates by state
- Victoria: 4.85% (1.2125% for regional employers), with a $1 million deduction that phases out between $3 million and $5 million of Australian wages.
- New South Wales: 5.45% on wages above a $1.2 million tax-free threshold from 1 July 2026.
- Queensland: 4.75% for employers or groups paying $6.5 million or less in Australian taxable wages and 4.95% above that, with a $1.3 million threshold.
- Western Australia: 5.5%, with a tax-free threshold that diminishes between $1 million and $7.5 million.
- South Australia: 4.95% where Australian taxable payroll exceeds $1.7 million, phasing in from a $1.5 million threshold.
These are the 2026-27 rates published by each revenue office. Thresholds, grouping and regional discounts all change what a particular provider pays. A large national provider is likely to sit at the headline rate, and a small one may pay less. The rate card therefore shows the typical case, and it is fair to ask which assumption sits behind it.
The mental health surcharge and levy
Two additional charges apply to large employers. Victoria's surcharges apply to Victorian wages where Australian wages exceed $10 million. The mental health and wellbeing surcharge is 0.5% and the COVID-19 debt surcharge is 0.5%, a combined 1%, rising to 2% above $100 million. Queensland's mental health levy is 0.25% on Queensland wages above the $10 million threshold, with an additional 0.5% above $100 million. Both are calculated on the wages above the threshold, and the threshold is adjusted for interstate wages.
A rate card that carries a Victorian surcharge line assumes a provider above $10 million of Australian wages. One that leaves it out assumes the provider is below it. Neither is wrong, but you can only compare two quotes if you know which assumption each one makes.
What thresholds do for a small provider
The rate on a rate card is a headline rate, and the effective rate can be lower. Take Victoria. A non-grouped provider with $3 million of annual Australian wages claims the full $1 million deduction and pays 4.85% on the remaining $2 million, which is $97,000, an effective 3.23% of wages. Once wages reach $5 million the deduction has phased out entirely, and the provider pays the full 4.85%. New South Wales works differently, with a $1.2 million tax-free threshold that is available in full to a non-grouped business paying wages only in New South Wales for the whole year, so the 5.45% applies only to wages above it.
This is why a quote built at the headline rate may sit above what a small provider pays, and why a very large provider may add surcharges in addition to it. It is reasonable to ask a provider whether its payroll tax line is the headline rate or its own effective rate, and the answer helps explain differences between two quotes for the same role.
Worked example: one casual hour in five states
Take a Storeworker grade 1 casual on commencement under the Storage Services and Wholesale Award from 1 July 2026. The weekday pay is $33.85 and the super is $4.06, so the wage base is $37.91. Payroll tax at the headline rate comes to:
- Victoria at 4.85%: $1.84
- Queensland and South Australia at 4.95%: $1.88
- New South Wales at 5.45%: $2.07
- Western Australia at 5.5%: $2.09
- Victoria with the 1% surcharge, at 5.85%: $2.22
The gap between the lowest and highest state is 25 cents an hour. On a crew of 20 working 38 hours a week, that is about $190 a week, before the surcharge. Unlike super, payroll tax applies to all wages, so overtime hours carry it too. On $47.39 of Victorian overtime pay the tax is $2.30.
What this means when you compare quotes
- State. Payroll tax follows where the wages are paid, so a multi-state roster has more than one rate.
- Surcharge. Ask whether the Victorian surcharge or Queensland levy is included and why.
- Base. The tax applies to pay plus super, not to the provider's fee, WorkCover insurance or GST.
- Flat percentage. A quote that applies the same percentage to every hour is a convention, so ask whether the provider is at the headline rate.
Payroll tax is one of several lines that explain why two providers quote different rates for the same role, as our post on why labour hire agencies quote different rates explains. Another is the WorkCover line, covered in our guide to WorkCover industry codes.
Related Resources
- State Revenue Office Victoria on employment agencies
- Victorian payroll tax rates and surcharges
- Revenue NSW payroll tax rates
- Queensland payroll tax rates and thresholds
- RevenueSA payroll tax rates
- why quotes differ for the same role
- labour cost per hour for blue collar roles
Common Questions About Payroll Tax in Labour Hire
1. Does the host pay payroll tax on labour hire workers?
Generally no. Under an employment agency contract the agency is treated as the employer and pays payroll tax on the wages it pays the worker. A placement arrangement, where the worker contracts directly with the client, is treated differently in Victoria, with the client as the employer.
2. What payroll tax rate applies to labour hire in Victoria?
The standard rate is 4.85% from 1 July 2025, or 1.2125% for regional Victorian employers, subject to a deduction that phases out between $3 million and $5 million of Australian wages.
3. Is the mental health surcharge part of payroll tax?
Victoria's surcharges and Queensland's mental health levy are collected with payroll tax but apply only to large employers, above $10 million of Australian wages, and only to the wages above the threshold.
4. Is payroll tax charged on overtime?
Yes. Payroll tax applies to wages in general, so overtime payments carry it, unlike super, which excludes overtime.
5. Do the rates in this guide apply in Tasmania?
This guide does not cover Tasmania or the territories. Check the relevant revenue office for those jurisdictions.
Ask Which Rate the Quote Assumes
The payroll tax line is the agency's cost, but the host pays for it through the charge rate, so the assumption behind it matters. Ask which state rate has been used, whether any surcharge is included and whether the provider is at the headline rate. Chandler Personnel provides Melbourne labour hire and permanent recruitment, and you can send your site location and roster through the request staff form.
