Employee or Contractor? Running a business entails a raft of decisions that you need to make. One of the most misunderstood is whether the people working for you are an employee or contractor. Quite often what you would like them to be may not be the case. What is the truth, however, is that you as the employer are responsible for getting it right. Getting it wrong can land you in trouble and make you liable for penalties.
There are a lot of myth’s out there fuelled mainly by misinformed rumours.
Myth: If a worker has an ABN they are a contractor
Fact: Having an ABN makes no difference. If the arrangement is employment they are an employee regardless of whether they have an ABN.
Myth: If a worker has a registered business name they are a contractor.
Fact: This has no bearing whatsoever
Myth: A worker cannot work more than 80% for one business and be a contractor.
Fact: The 80/20 rule relates to how they report their income in their tax return, not as to whether they are a contractor.
Myth: If a worker submits an invoice for their work they are a contractor
Fact: This does not automatically make a worker a contractor if based on a working arrangement.
Myth: Employing contractors means you don’t have to pay superannuation
Fact: If the contract is wholly or mainly for the person’s labour, superannuation is payable.
Myth: Workers with specialist skills should be contractors.
Fact: This does not make them a contractor – their status depends on the terms and conditions that the work is done under.
Myth: If the worker’s contract says they are a contractor this makes them legally one.
Fact: If the worker is legally an employee the contract does not override the employment relationship and PAYG and super obligations will still apply.
Myth: If a worker is a contractor for one job they will be a contractor for all jobs.
Fact: The working arrangement and terms under which work is done will be applied to each assignment individually so the worker could be a contractor on one job and an employee on another.
Myth: The worker has elected to be a contractor so they can be employed as one.
Fact: The worker’s preference does not determine their status as either an employer or contractor. The working arrangement and terms and conditions determine the worker’s status.
Myth: It is an industry practice that workers are taken on as contractors so this makes it ok.
Fact: Ignore common industry practice when determining whether the worker is a contractor or employee.
To help employers determine the status of those they employee the ATO has developed a Employee/Contractor decision tool to answer some questions about your working arrangement and get an answer you can rely on. Once you complete the decision tool you can retain a copy of the result on file to justify your decision that you have taken. The tool is anonymous so a record is not kept of your answers.
This can be accessed at www.ato.gov.au/ec