With the gig economy taking over, and more people looking to become contractors or freelancers, getting your compliance straight can be confusing. You have to ask yourself when are your contractors not contractors?
It may become confusing, and if you take the wrong step the consequences could be costly. The label affects tax, super and other obligations and penalties and charges may apply for a mistake.
You can’t just assume that the person you are hiring is a contractor. There are some basic things you can check to make sure.
Some workers will always be employees.
If you have an apprentice, trainee, labourer or trade assistant on your books they will always be paid as an employee. This means you, as the employer, are responsible for paying tax, covering their insurances and making super contributions. They can be employed full time, part-time or through school-based employment, and are usually working toward a qualification.
Companies, trusts and partnerships are always contractors.
An employee is an individual working via PAYG must be a person, so if you have employed a company or trust to complete the work, or have entered into a partnership, then a contracting agreement exists. This means each company must complete their own set of accounts, BAS plus insurances to meet all tax and super obligations.
If you are hiring an individual, you have to look at various factors around the terms of their employment to determine whether they are an employee or contractor:
Sub-contract or delegate: an employee is not able to sub-contract or delegate, they must complete the job which they are tasked with themselves. Alternatively, a contractor can delegate part of their task and pay someone else to complete it.
Basis of payment: the employee is paid a set rate for the time they have completed whether it is a daily or hourly rate which is paid regularly or if they are paid a commission per each item or activity that they complete, they will be seen as an employee also.
Commercial risks: who is covering any insurances? If you are covering any commercial risks, then the worker is an employee, but if the commercial risks are covered by the individual, then they are a contractor.
Independence: is the worker operating independently of your business? If not, then they are an employee.
Labour hire or on-hire arrangements
There is also the possibility of obtaining your worker through a labour-hire (or on-hire) firm. These labour-hire firms can be called a variety of names, including recruitment services, group training organisations and companies who have registered for an On-Hire Licence in certain states. On an international level, it includes companies who hold a Labour On-Hire Agreement with the Department of Home Affairs which allows them to sponsor a skilled international worker on a Temporary Skill Shortage (TSS) subclass 482 visa on behalf of the company.
If you have obtained your worker through a labour-hire (or on-hire) firm and pay that firm for the work undertaken in your business, then your business has a contract with the labour-hire firm and they are responsible for the PAYG withholding, super and FBT obligations.
In simple terms, you hired a contractor, who is an employee of the on-hire company.
An on-hire company is an easy way to control the multi-layered government compliance and legalities that are required when running contractors.
If you are still confused or in doubt as to whether your contractors would be deemed/viewed as employees or not, we are more than happy to have a look at your company’s individual circumstances and advise accordingly. Don’t hesitate to contact us on 02 9407 8700 or reach us at [email protected] to discuss it further.