It’s an area that can be easy pickings for the regulatory bodies sometimes, so making sure you understand the difference in your business is crucial.
The penalties for getting it wrong are plentiful, including:
- Penalties for failure to withhold PAYG Witholding
- Superannuation guarantee charge and penalties
- Fair Work infringement notices
- Payroll tax and WorkCover
So, who is an employee? The first tool the ATO uses is the employee/contractor decision tool (https://www.ato.gov.au/calculators-and-tools/employee-or-contractor/). Whilst relying on this tool itself does not guarantee the right outcome, it’s use can reduce the penalties imposed if you are found to be wrong.
Often the definition is the ‘common-law’ definition of an employee, which looks at many different factors, none of them being definitive on their own, including:
- Being paid for a result
- Control over the work
- Ability to delegate
- Tools and equipment needed
- Level of risk
- Contractual terms
Contrary to popular myth as well, just because a contractor does less than 80% of their work for your business, that does not make them a contractor.
Similarly, under some payroll tax legislation, even if a contractor uses an incorporated entity, they still may be caught as a ‘relevant contract’ and deemed to be wages.
If you think your contractors may be employees, it may be time to check. Contact our office anytime for assistance.
Contributed by David Gow
