Employee vs Contractor

By Brooke Guiton

The importance of correctly classifying your workers.

It is important that businesses correctly classify workers as either employees or independent contractors, as the status of the worker will determine whether a business is liable for PAYG withholding, superannuation guarantee contributions and workers compensation insurance.

If a business fails to correctly identify a worker as an employee, significant tax and super obligations, together with penalties and interest, may apply.

Your worker, regardless of whether they have an ABN, may be deemed to be an employee rather than a contractor if:

  • they are paid on a regular basis for the time worked, rather than for a result achieved
  • they do not have the ability to sub-contract or delegate the work
  • they are not legally responsible for rectifying defective work
  • they are generally not required to provide their own tools and equipment
  • you are able to exercise control over the way the work is performed

To assist businesses in making such an assessment, the Tax Office has an online tool available.  The free “Employee/Contractor Decision Tool” presents several questions about the working arrangement.  It provides a report summarising the responses given, which can then be used as a guide when determining if an employee or contractor arrangement exists. 

Click here for the link to the “Employee/Contractor Decision Tool” available on the ATO’s website for tax and super purposes.

Click here for the link to the “Deemed Worker or Contractor Tool” available on Workcover’s website for workers compensation insurance purposes.

Brooke Blog

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