Is your contractor actually an employee for tax purposes?


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An article published by Poli Legal highlights the tax issues employers may face when engaging the services of contractors.

The key issues that need to be considered are;

  • The employer may be required to pay PAYG amounts to the Australian Taxation Office (‘ATO’);
  • The employer may be required to pay additional payroll tax and penalties
  • The worker may be owed significant unpaid superannuation benefits.

There is a need determine which workers of a business are employee and which are contractors. The article provides a  list of factors which need to be considered when determining if a worker is an employee or contractor. These include;

  • the terms of the contract and the conduct of the employer and worker in negotiating the terms;
  • whether it is a results contract or the worker is paid per hour;
  • whether the worker works exclusively for the employer;
  • the degree of control over the employee (eg. the work involves specialist skills, expertise and knowledge or a license is required);
  • whether there are established working hours;
  • whether work can be delegated or subcontracted by the worker;
  • whether the worker operates their own business;
  • whether the worker bears any risk of costs; and
  • the provisions of tools and equipment and payment of business expenses

Once the status of the worker has been determined there are then implications for both payroll tax and superannuation liabilities that also need to be considered. Therefore it is essential that business owners carefully evaluate the status of all people that work for their business to ensure all liabilities associated with engaging them are being met.

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