Over the last couple of years the ATO has made a concerted effort to tackle what they see as problem contractors or to put it more simply people who are working as contractors who the ATO think should be treated as employees. There has been many political arguments put forward arguing the case for the use of contractors and their use is the norm in industries such as building & construction but despite the rhetoric whether someone is an employee or a contractor comes down to the facts of the situation. 

The ATO has plenty of information available on this area and the following link includes some checklists to help determine the employee vs contractor status, http://www.ato.gov.au/Business/Employee-or-contractor

In summary the characteristics of a contractor include:

  • the ability for the worker to sub-contract or delegate the work;
  • the worker quotes for the work and is paid for a result achieved based on that;
  • the worker provides all or most of the equipment, tools etc required to do the work and does not receive an allowance or reimbursement for the cost of this equipment;
  • the worker takes the commercial risk with the worker being legally responsible for the work and liable for the cost of rectifying any defect in the work;
  • the worker has freedom in the way the work is done subject to the specific terms in any contract or agreement and
  • the worker operates their own business independently from the business that hires them. They perform services as specified in their contract or agreement and are free to accept or refuse additional work.

You will note that having an ABN is not a factor in determining whether a worker is an employee or not.

Whether a worker is classified as an employee or a contractor will determine the types of tax deductions that they are allowed to claim as well as the obligations the business paying them has for PAYG withholding, leave entitlements and possibly superannuation and workers compensation.

If you would like further information or would like to discuss your situation with us please call and we will be happy to help.