It can often be difficult to determine whether someone working for your business is an employee or an independent contractor.
A common misconception is that if a worker has an ABN and invoices you for their work, then they must be an independent contractor. In fact, the Tax Office and other bodies such as the Fair Work Commission will look at a whole range of factors when deciding if someone is an employee or a contractor. An invoice is only one factor, and is not decisive on its own.
The implications of getting this wrong can be serious - including having to pay additional tax and/or back-pay employee entitlements including leave and superannuation. So, it's important to be certain about the arrangements you have in place.
The Australian Tax Office has some useful resources, available free of charge, that can help small businesses figure out the correct working relationship. They are:
Online employee/contractor decision tool. This involves an online questionnaire, and provides you with a report that outlines whether your worker is an employee or contractor for tax and super purposes, and details any tax and super obligations you need to meet. The ATO states on its website that:
Provided your responses accurately reflect the working arrangement, you can rely on the result provided by the tool. It is a record of your genuine attempt to understand your obligations for your worker and would be considered if we review your working arrangement in the future.
The online decision tool is on the ATO website at https://www.ato.gov.au/Calculators-and-tools/Employee-or-contractor/?2016SBN_Invoice.
Employee/Contractor Webinar. These are one-hour webinars that cover a range of issues including:
- the differences between employees and contractors
- common myths about contracting
- how to make the right decision about the status of your workers
- what the tax and super consequences are for each.
The webinar is being held at the following times:
- Tuesday, 28 June 2016 4.00pm-5.00pm AEST
- Wednesday, 20 July 2016 12.00pm-1.00pm AEST
- Thursday, 11 August 2016 12.00pm-1.00pm AEST.
To register to attend one of the webinars, visit the ATO website at https://www.ato.gov.au/General/Webinars/Employee-or-contractor-webinar/?2016SBN_Invoice.