The employment laws in Australia can be onerous for small businesses. This has led to many arguments over whether you should employ staff as an employee or as a contractor.
There are numerous benefits of engaging a contractor instead of employing an employee, however when you hire a worker, forget the common myth that they are a contractor just because they have an ABN.
Whether or not a worker has an ABN, makes no difference to whether you should treat them as an employee or a contractor.
When it comes to tax and superannuation, working out if your worker is an employee or a contractor is based on the terms and conditions of their working arrangement with you. It is important to get it right, because your tax and superannuation obligations can change based on those arrangements.
The Australian Tax Office (ATO) has an employee/contractor decision tool that can help you reach a quick and reliable answer. The tool will tell you if your worker is an employee or a contractor for tax and superannuation purposes and what this means for your business.
One important risk to understand is that an employer (or directors of the company) can be held personally liable for the PAYG withholding tax and superannuation for employees. You don’t want to get the employee or contractor decision wrong and be held personally liable for the tax and superannuation after you have already paid the contractor in full.
The ATO will pursue the employer not the contractor, and the chances of being able to recover anything from the contractor once you have paid them would be futile. So you, as an employer, need to ensure you make the right decision about whether a worker is an employee or a contractor.
As always, if you have any issues in this regard don’t hesitate to contact your Client Manager.