When engaging a new employee, there are obviously quite a number of different things to take into account before entering into any contract or agreement. One of those important things that you need to decide is “are they employees or contractors?”. It is sensible to do this before you enter into an agreement or have them sign a contract. If you have previously engaged a worker without checking this information, you should review that engagement to ensure you got it right.
How do you determine if workers are employees or contractors? You will need to examine the entire working arrangement. Just because they have an ABN or specialist skills, or because you only need them during busy periods does not necessarily mean that they are automatically a contractor. Workers who are employees are generally people who work as apprentices, trainees, company directors, labourers and trades assistants. If you engage any of those types of workers, you need to treat them as employees. The line separating employees from contractors is sometimes blurred, however, a general rule to keep in mind is that employees work in your business and are part of your business. Contractors, on the other hand, are running their own business.
It is important for the running of your business that you ensure you know the difference between, and categorise correctly, employees and contractors. You need to keep records to support your decision on whether your worker is an employee or contractor and, subsequently, your tax, superannuation and other obligations will change depending on which decision you make. Therefore, you need to know the difference in order to accurately make the decision and tend to the subsequent running of your business.
To assist in making this decision, the ATO have released a generic Employee/Contractor decision tool. This can be found at https://www.ato.gov.au/calculators-and-tools/employee-or-contractor/ This tool should only be used as a guide and if you have any concerns about the implications for your business, please contact us.
If you make the wrong decision and, therefore don’t meet your obligations, you face penalties and charges. This is because, by incorrectly treating employees as contractors, businesses can illegally reduce their labour costs and gain an unfair advantage over their competitors and can deprive their employees of their employee entitlements.
If you need assistance in making your decision, or ensuring you get it right for your business get in contact with us today.