From the Institute of Chartered Accountants

Distinguishing between employees and contractors is not just a HR issue. There are tax consequences too. In general terms, if a worker is an employee:

• PAYG withholding applies to salary
• Fringe Benefits Tax applies to non-cash benefits
• the employer must make superannuation contributions
• there could be state payroll tax.

A ‘genuine’ contactor on the other hand should have an Australian Business Number (ABN) which raises other issues such as Goods and Services Tax.

The tax and superannuation guarantee laws are structured in a way that, even if a worker has an ABN, the payer (employer) is still obliged to determine whether the worker is in fact a ‘genuine’ contractor or really an employee.

There have been many court cases on the employee- contractor distinction, and these decisions have determined numerous ‘tests’.
If you use contract labour in your business, it is worth implementing a checklist approach for use at hiring time which reflects these tests.

That way, you can demonstrate to the ATO and others that your business has done its best to comply with a very difficult area of tax law.

For assistance in designing a checklist contact Aspire today.