When you hire a worker you must check if they would be considered by the ATO to be an employee or a contractor.
The distinction is extremely important for all business owners as it impacts your tax, super, workcover and payroll tax obligations, with penalties applying where an individual is treated incorrectly.
This is because some individuals who you may consider to be contractors can be caught by specific legislation which deems them to be employees for the purposes of that relevant legislation. For example, the superannuation guarantee legislation considers that "if a person works under a contract that is wholly or principally for the labour of the person, the person is an employee of the other party to the contract". As such, where an individual is primarily engaged for their labour then superannuation guarantee of 10% would be required to be remitted to their nominated super fund even if they are paid by you under an individual ABN.
Please be aware, such legislation and obligations may apply despite any workplace agreement (even if this is in writing) which has been formalised between yourself as a business owner and the individual worker.
So what next? We can direct you to the ATO's Employee or contractor decision tool. These questions should be carefully considered for each and every worker engaged by your business. https://www.ato.gov.au/business/employee-or-contractor/how-to-work-it-out--employee-or-contractor/
Some other important things to consider include :-
Some workers engaged by yourself will always be considered employees and these include apprentices, trainees, labourers and trades assistants.
On the other hand, some type of workers you engage such as, companies, trusts and partnerships are always contractors for tax and super purposes. You are able to determine if a worker is trading under such a structure (as compared to being an 'Individual/Sole Trader' by using ABN Lookup.
Should you wish to clarify any of the above or have queries about your ongoing obligations as a business engaging workers please do not hesitate to contact our office.
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