Are you a contractor or employee? The difference between these is that as a contractor you are an independent party which runs their own business with a certain amount of flexibility, whilst an employee is engaged exclusively by the company indefinitely to perform work. Contractors are engaged by businesses on a limited basis and are not subject to the employers’ control.
Being a contractor, although posing its own financial risks, can be very rewarding and provides independence. There are however several government agencies which put businesses under the microscope when it comes to compliance. There are certain obligations contractors much comply with in relation to any contractors, subcontractors, or employees they engage.
The Australian Tax Office
The ATO narrows in on employees which are being treated as contractors “[Tax Office personnel] visit businesses and review the way they engage their workers, paying particular attention to individual workers who may be common law employees but are being incorrectly treated as contractors”. This in turn provides a level playing field for all Australian Businesses.
In some cases businesses utilise “sham” contracting arrangements which means that are not obliged to fork out the money for payroll costs such as super, tax, sick and holiday pay. The ATO cannot however dictate how the business is run if certain services are required that are not within the usual practise and they truly do need to contract out.
WorkCover is a government body which oversees that the legal obligations of employers meets the Workers Compensation and Injury Management Act 1981. Non-compliance with this can see penalties arise.
Fair Work Australia oversees that all workers are treated fairly and correctly. In a recent case, the Fair Work Ombudsman found incorrectly classifies workers and this resulted in penalties which focused on repaying the entitlements which workers missed out on. Back payment had to be installed and directors and mangers or the business were fined for non-compliance with the Fair Work Act. Fines can range up to the hundreds of thousands of dollars and can include payment for payroll tax, superannuation, and WorkCover.
What do regulators look for?
The circumstances of any business arrangement are what the regulatory body will scrutinise. These factors include but are not limited to:
- Economic risk
- Supply of materials and equipment, and
- Method of remuneration
The regulator will come in and determine if the contractor is in fact an ‘employee’ by nature and definition.
Industries in the spotlight
New reporting requirements from 2012 apply to the payments made to contractor providing building and construction services. Businesses need to ensure that GST and super is applied, and data will be cross-checked by the ATO. Failing to comply can lead to further taxes being payable on review.
Aside from building and construction, all contractors, specifically cleaners, security operators, retailers, tourism operators, aged care providers, health care operators, and those in entertainment need to ensure their employment or contractual agreements are in order.
How do you get help?
Tax and regulation specialists such as Crowe Horwath can allow easy access to experts in different areas of tax and legislation for your industry. They can assess the risks and develop employment tax compliance strategies, as well as advise on management of potential disputes with the ATO and government agencies. For more information you can visit their website in the link above or contact Contractor Cover for further insurance advice.