Is that worker really a contractor?

06/04/2015

Apart from being just a HR issue, differentiating an employee to a contractor also brings about tax consequences. 4 simple ways to tell if a worker is an employee is when:

  • their salary is deducted with PAYG withholding
  • any non-cash benefits are subjected to Fringe Benefits Tax
  • superannuation contributions must be deducted by employers
  • the existence of state payroll tax

For someone to be recognised as a contractor, s/he should possess an Australian Business Number (ABN), which in turn brings about other matters like GST.

You as an employer are still responsible to determine that a worker is in fact a ‘genuine’ contractor or not, according to the tax and superannuation guarantee laws. Just because s/he has an ABN does not automatically makes the worker a ‘contractor’.

Numerous ‘tests’ exist nowadays after a number of court cases on the employee-contractor distinction. So if your business requires contract labour, it is advisable to have a system of crossing off a checklist containing these ‘tests’ when hiring workers. This allows you to prove to the ATO and others that your business had taken necessary measures to comply with this area of legality.

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