A recruitment agency can bill a $20,000 placement fee and a month of labour hire in the same week, and the GST and withholding rules for each are different. Get them mixed up and the BAS is wrong before it is lodged.
This guide explains GST on placement fees, GST on labour hire invoices, when fees to overseas clients can be GST-free, how it all goes on the BAS, and PAYG withholding on workers you place, for the 2025-26 and 2026-27 years. Rules were checked against ATO GST guidance, the ATO ruling on labour hire and the ATO labour hire withholding page.
It is for recruitment agency owners, on-hire businesses and sole trader recruiters. If you have not registered yet, our GST registration guide covers the steps.
Key takeaways
- GST is 10%; you must register once GST turnover reaches $75,000, within 21 days.
- Placement fees to Australian clients are taxable, even when the candidate comes from overseas.
- GST applies to the whole labour hire fee, including the part that covers the worker’s wages (GSTD 2000/12).
- Fees to a non-resident client not in Australia can be GST-free, but not if the service is provided in Australia.
- Labour hire firms withhold PAYG from individual workers they place, whether employees or contractors.
- No ABN on a supplier invoice means withholding at 47%.
Recruitment GST at a glance
| Income or payment | GST treatment | PAYG withholding |
|---|---|---|
| Permanent placement fee to Australian client | Taxable, add 10% | Not applicable |
| Labour hire or on-hire fee to client | Taxable on the full fee | Not applicable |
| Fee to non-resident client not in Australia | Can be GST-free | Not applicable |
| Pay to individual labour hire worker | No GST on the payment | Withhold using tax tables |
| Payment to worker’s company or trust with ABN | GST if that entity is registered | Generally none |
| Supplier invoice with no ABN | Depends on supplier | Withhold 47% |
Source: ATO how GST works, GSTD 2000/12, ATO exports and GST, ATO labour-hire firms and their workers, ATO withholding if ABN not provided, checked 9 October 2026.
When does a recruitment business need to register for GST?
Under the ATO registering for GST rules, you must register when your GST turnover reaches $75,000 or more, and you have 21 days to do it. GST turnover is total business income, not profit, measured over the current month and previous 11 months, or projected over the current month and next 11 months.
Labour hire businesses often cross the threshold in their first few months because the full amount billed to clients counts, not just the margin. Our GST registration service can handle the registration for you.
How does GST apply to placement fees?
GST is a broad-based tax of 10% on most goods and services. A permanent placement fee to an Australian client is a taxable supply, so you add 10% and issue a tax invoice.
Where the candidate lives does not change this. If you recruit a software engineer from India for a client in Sydney, your client is in Australia and uses the service in Australia, so GST applies to the fee.
Watch the smaller charges too. Advertising recharges, background checks and admin fees billed to clients are part of your supply and generally carry GST.
How does GST apply to contractor labour hire?
The ATO ruling GSTD 2000/12 says a labour hire service provided by a labour hire firm to the client is a taxable supply. The ruling notes the service fee is based on the wages and related costs of the worker, and still treats the whole fee as taxable. So you charge GST on the full amount billed, not just your margin.
The other side of the arrangement is different. The ruling says a payment to an individual under a labour hire arrangement is not subject to GST, and the ATO labour-hire page says individual contractors in this position are not entitled to register for GST because they do not meet the definition of enterprise. If the worker contracts through their own company or trust and that entity is registered, it will charge you GST, which you can claim as a credit.
Are fees to overseas clients GST-free?
The ATO exports and GST page says a supply of a service is GST-free if it is made to a non-resident who is not in Australia when the supply is made, or if it is used or enjoyed outside Australia. It also says a service is not GST-free if it is provided in Australia, even if the recipient is not in Australia.
- Likely taxable: an Australian client hiring for a role in Australia, wherever the candidate is.
- Possibly GST-free: a client based overseas, with no presence in Australia, hiring for a role overseas.
- Needs a closer look: an overseas parent company paying for a hire into its Australian subsidiary, or an on-hire worker placed with an Australian site.
Keep evidence of where the client is and where the service is used, such as contracts and client addresses. Cross-border recruitment rules have further conditions, so get advice before you invoice an unusual arrangement without GST.
How do you report recruitment GST and withholding on the BAS?
Your BAS brings together GST on sales, GST credits on purchases and PAYG withheld. Our activity statement guide and guide to lodging BAS online walk through the process. The ATO PAYG withholding BAS instructions set out these labels:
| BAS label | What a recruiter reports |
|---|---|
| W1 | Total gross payments you usually withhold from, including payments by a labour hire firm to labour hire workers |
| W2 | Amounts withheld from wages and other payments at W1 |
| W4 | Amounts withheld from suppliers who did not quote an ABN (47%) |
| 1A | GST on sales, such as placement and labour hire fees |
| 1B | GST credits on business purchases, such as job advertising |
If you pay workers through payroll, Single Touch Payroll reports their pay and withholding to the ATO each pay day. Your STP totals and BAS W1 and W2 figures should reconcile.
Worked example: one quarter for a small recruitment agency
An agency registered for GST has three income items in the quarter:
- Permanent placement fee to a Melbourne client: $18,000 + GST $1,800 = $19,800
- Labour hire to a Brisbane client: 160 hours x $95 = $15,200 + GST $1,520 = $16,720
- Placement for a client based in Singapore with no Australian presence, for a role in Singapore: $12,000, treated as GST-free
Total sales: $19,800 + $16,720 + $12,000 = $48,520, including GST.
GST on sales: $1,800 + $1,520 = $3,320.
GST credits: job advertising of $2,200 including GST gives a credit of $2,200 / 11 = $200.
Net GST payable: $3,320 – $200 = $3,120.
Withholding: the agency paid the labour hire worker 160 hours x $70 = $11,200. That goes at W1 and the tax withheld from it, worked out from the ATO tax tables, goes at W2. No GST applies to the worker’s pay.
Rule of thumb: GST follows the client, withholding follows the worker. Ask where the client is and uses the service to settle GST, then ask how the worker is engaged to settle PAYG.
How does PAYG withholding apply to contractors you place?
The ATO labour-hire firms and their workers page says you operate a labour-hire firm if you arrange for workers to perform work directly for clients, the client pays you and you pay the worker. Withholding applies whether the worker is an employee or an independent contractor, and every worker must give you a TFN, even if they have an ABN.
Where the work is contracted through an interposed entity, such as the worker’s own company, you generally do not withhold unless it fails to quote an ABN. If any supplier does not quote an ABN, you withhold 47% from payments over $75 (excluding GST) unless an exception applies.
Employee or contractor?
For workers outside a labour hire arrangement, the ATO looks at the whole relationship: control over the work, whether the worker runs their own business, whether they can delegate, how they are paid, who supplies equipment and who carries the commercial risk. A contract label alone does not decide it. Misrepresenting an employee as a contractor can be sham contracting under the Fair Work Act, and the super guarantee of 12% may still apply. Our personal services income guide covers how the PSI rules affect contractors themselves.
Payroll tax on placed workers
Payroll tax is a separate state tax on wages above each state threshold. Ask the revenue office in each state where you place workers how on-hired workers are treated. Our payroll outsourcing guide lists the state revenue offices and thresholds checked this month.
Common mistakes recruitment businesses make with GST
- Charging GST on the margin only: GST applies to the full labour hire fee.
- Treating an overseas candidate as an export: the client’s location and use of the service decide GST, not the candidate’s.
- Not withholding from ABN contractors: labour hire firms withhold from individual workers even if they have an ABN.
- Claiming credits without tax invoices: keep a valid tax invoice for each purchase you claim GST on.
- Mixing personal costs into the business: an owner’s HECS-HELP repayments and private expenses are not business costs.
For deductions specific to the industry, see our tax deductions guide for HR and recruitment professionals.
FAQ about GST for recruitment businesses
Do recruitment agencies charge GST on placement fees?
Yes, if the agency is registered for GST and the client is in Australia. A placement fee is a taxable supply, so the agency adds 10% GST and reports it on the BAS. This applies even when the candidate is recruited from overseas, because the client receiving and using the service is in Australia.
Is GST charged on the wage component of a labour hire invoice?
Yes. The ATO ruling GSTD 2000/12 treats the labour hire firm’s whole service fee to the client as a taxable supply, even though the fee is worked out from the worker’s wages and related costs. The payment from the firm to an individual worker under the labour hire arrangement is not itself subject to GST.
Can recruitment fees charged to overseas clients be GST-free?
They can be. The ATO says a service can be GST-free when it is made to a non-resident who is not in Australia when the supply is made, or when it is used or enjoyed outside Australia. A service provided in Australia is not GST-free just because the client is overseas, so check the facts of each engagement.
Do I withhold tax from a contractor I place with a client?
Generally yes, if you are a labour hire firm paying an individual. The ATO says withholding applies to workers under labour hire arrangements whether they are employees or independent contractors, and having an ABN does not remove that duty. If the worker contracts through their own company or trust that quotes an ABN, you generally do not withhold.
When does a recruitment business need to register for GST?
When its GST turnover, current or projected, reaches $75,000 or more. Turnover means total business income, not profit, excluding GST. Once you reach the threshold you have 21 days to register. Many recruiters reach it quickly because labour hire billings count in full, not just the margin.
Talk to specialist before it costs you
15-minute discovery call. No obligation, no jargon.
Talk to a registered tax agent
Nanak Accountants can review your GST treatment of placement and labour hire fees, set up PAYG withholding for placed workers and prepare your BAS. Call 1300 626 258 or book a free 15-minute consultation.
This article is general information only and is not personal tax or legal advice. Figures and rules were checked against the ATO how GST works, registering for GST, exports and GST, labour-hire firms, PAYG withholding BAS and employee or contractor pages, GSTD 2000/12 and the Fair Work Ombudsman sham contracting page on 9 October 2026. Rates and thresholds change, so confirm the current position before acting.
