Is Your Contractor an Employee?
Employment Law: Is Your Contractor an Employee? If you get it wrong, what are the penalties?
The ATO (Australian Taxation Office) often issues guidelines for Employers to better understand the relationship they may have with their workers. It is important to get this relationship right from day one. Here are their six (6) basic questions to ask to help determine whether or not your worker is indeed a Contractor and not an Employee.
- Ability to subcontract/delegate: can they pay someone else to do the work?
- Basis of payment: are they paid based on an agreed quote they provided?
- Equipment, tools and other assets: do they provide their own tools and equipment needed to get the job done?
- Commercial risks: are they legally responsible for their work and liable for fixing mistakes or defects?
- Control over the work: do they decide how the work gets done subject to specific terms in the contract or agreement?
- Independence: do they operate their own business independently of your business?
If you are not sure as to the answers to these questions, make sure you seek further advice before you enter into a Subcontract relationship. The penalties are severe, and the responsibility is with the employer to get the arrangements right for tax and superannuation, and there is never one deciding factor that determines the working arrangement.
If you contract with someone who is later determined to be an Employee, then you will be responsible to: Pay the ATO any amount that you should have deducted for PAYG, and liable for applicable payments under the Superannuation Guarantee Levy.
Additionally, you will also be liable for interest, the Directors of the company could be held personally liable for those underpayments, and the ATO may serve Director Penalty Notices upon them.
Remember to consider the arrangements carefully, and if in doubt, please contact our office for professional advice.