The payroll company that has left Canberra IT contractors unpaid for a week will take legal action, blaming a Tax Office dispute for the debacle.
Plutus Payroll told clients in an email on Friday the Australian Taxation Office had frozen its bank accounts without warning on April 27, alleging it owed money, and stopping it from paying contractors.
"We received no notice of intention to audit, no complaint and no other advance warning of non-compliance from the ATO," it said.
Plutus said it filed a case with the Federal Court, expecting a hearing on Monday, after the ATO would not let it pay contractors from the frozen accounts.
"We went further and agreed that the ATO could retain all of the other bank account funds, if they would just agree to let us pay you, while the dispute could be considered by the courts," it told contractors.
"For five days our lawyers have been vigorously protesting on your behalf. Despite our offer - and knowing that we only wanted to release enough of the money to pay your wages - the ATO has this evening refused our request. And exhausted our patience."
The ATO said it could not comment on Plutus' tax affairs for confidentiality reasons.
Plutus estimates it owes more than 1000 unpaid contractors, and wants the Federal Court to order the Tax Office to unfreeze the bank accounts so it can pay them.
It labelled the ATO's move "an extraordinary, aggressive exercise of their powers", denied it owed money and said it had been "rigorously" tax compliant.
"Documents filed with the court show how Plutus has made payments faithfully and regularly on account of PAYG and these will, in time, be available for public examination."
The payment freeze has hit Canberra IT contractors opting to use the company's payroll services for work completed at public service departments and corporates after registering with recruitment agencies.
Contractors chasing unpaid money have been unable to contact the company, which charges no fees for transferring wages, while recruitment agencies have scrambled to switch them to other payroll systems.
Canberra IT contractor Paul Johnston, missing $4300 in superannuation, has changed pay roll companies.
"I think they've demonstrated a textbook case of how to destroy good will," he said.
"They've made a lot of people very angry."
Payments scheduled on April 27 and 28, and May 1 and 2 have not been deposited as Plutus halted operations.
In an email to clients on Tuesday, Plutus moved to quell rumours it was in administration, saying it had "responsibly" decided to suspend its operations as a commercial dispute stopped it from making payments.