To check if your worker is an employee or independent contractor, you need to review the whole working arrangement.
Classifying your worker
The High Court’s judgments in CFMMEU v Personnel Contracting [2022] HCA 1 and ZG Operations v Jamsek [2022] HCA 2 clarify that that whether a worker is an employee under the ordinary meaning of the word is a question of fact to be determined by reference to an objective assessment of the totality of the relationship between a worker and the putative employer, having regard only to the legal rights and obligations arising from the contract (that is, the terms of the contract) between the parties.
You are responsible for classifying your worker for tax and super purposes and you need to get it right. If you make an incorrect decision, you may face penalties.
If you are engaging a worker who you believe is an independent contractor, you can choose to pay them super to ensure you are not liable for the superannuation guarantee charge (SGC). You will need to pay any super contributions directly to their chosen superannuation fund and should include this in your contract with the worker.
Superannuation obligations still may apply to certain independent contractors
In certain circumstances you must pay superannuation for independent contractors who are deemed to be employees for superannuation purposes.
These circumstances include if the worker:
- works under a contract that is wholly or principally for their labour
- performs work that is wholly or principally of a domestic nature for more than 30 hours per week
- is a sportsperson, artist or entertainer paid to perform, present or participate in any music, play, dance, entertainment, sport, display or promotional activity, or similar activity
- is a person paid to provide services in connection with any performance, presentation or participation in these activities
- is a person paid to perform services related to the making of a film, tape, disc, television or radio broadcast.
Some workers are always employees
The following workers are always treated as employees:
- apprentices
- trainees
- labourers
- trades assistants.
Apprentices and trainees do both work and recognised training to get a qualification, certificate or diploma. They can be full-time, part-time or school-based and usually have a formal training agreement with the business they work for. This is registered through a state or territory training authority or completed under a relevant law.
In most cases they are paid under an award and receive specific pay and conditions. You must meet the same tax and super obligations as you do for any other employees.
Companies, trusts and partnerships are always contractors
An employee must be a person. If you’ve hired a company, trust, or partnership to do the work, this is the contracting relationship for tax and super purposes. The people who do the work may be directors, partners, or employees of the contractor but they’re not your employees.
Labour hire or on-hire arrangements
If you hired your worker through a labour hire firm and pay that firm for the work undertaken by the worker in your business, your business has a contract with the labour hire firm and not the worker. It is the labour hire firm that is responsible for pay as you go (PAYG) withholding, super and fringe benefits tax obligations for the worker. Labour hire firms may be called different names, including on-hire firms, recruitment services or group training organisations. They will refer to your business as the ‘host employer’.
Hiring individuals
If you’ve hired an individual, the details within the working agreement or contract determine if they are an independent contractor or employee for tax and super purposes. The agreement or contract can be wholly written, wholly oral or any combination of written terms, oral terms and terms implied from conduct.
To check if your worker is an employee or independent contractor, you need to review the whole working arrangement.
Source: ato.gov.au April 2024
Reproduced with the permission of the Australian Tax Office. This article was originally published on https://www.ato.gov.au/businesses-and-organisations/hiring-and-paying-your-workers/employee-or-independent-contractor/how-to-work-it-out-employee-or-independent-contractor
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