There has been a recent increase in the level of Australian Taxation Office (ATO) audits and reviews of employee versus contractor relationships.
Deeming the relationship as an employee or contractor arrangement can have a significant impact on your tax and withholding obligations, particularly in relation to PAYG Withholding, Superannuation Guarantee Contributions (SGC) and ABN Withholding. As such, it is extremely important to clarify these working relationships.
If this impacts you, it is recommended you take a close look at your existing relationships to establish for tax purposes whether an employee or contractor relationship exists.
Below is an outline put together by the ATO on the differences between an employee and an independent contractor.
Generally, a worker is an employee if they:
- are paid for time worked
- receive paid leave (for example, sick, annual or recreation, or long service leave)
- are not responsible for providing the materials or equipment required to do their job
- must perform the duties of their position
- agree to provide their personal services
- work hours set by an agreement or award
- are recognised as part and parcel of the payer’s business, and
- take no commercial risks and cannot make a profit or loss from the work performed.
An independent contractor is an entity (such as an individual, partnership, trust or company) that agrees to produce a designated result for an agreed price. In most cases an independent contractor:
- is paid for results achieved
- provides all or most of the necessary materials and equipment to complete the work
- is free to delegate work to other entities
- has freedom in the way the work is done
- provides services to the general public and other businesses
- is free to accept or refuse work, and
- is in a position to make a profit or loss.
If you need assistance in clarifying whether your worker is an employee or contractor, click here for access to the ATO Employee/contractor decision tool or call us on 07 3833 3999.