The decision to hire someone comes with all kinds of paperwork – that’s unescapable. This can be further complicated if you’re hiring someone who has an ABN or for a short term contract.
Deciding if you are hiring them as an employee or a contractor is very important and affects your tax and super obligations. Incorrectly treating workers as a contractor when they should be an employee is actually against the law and could leave you liable to penalties. So it’s very important to get this right.
You need to consider:
- If the worker has the ability to subcontract or delegate
- How the worker will be paid – for time worked or for a result achieved
- Who provides any equipment tools and assets
- Who wears the commercial risk
- Who has control over the work
- If the worker is independent of your business or not.
The ATO has a tool that you can use to help you work out the correct arrangement.
Here are a few myth busters about hiring contractors or employees.
Having an ABN doesn’t mean they’re automatically a contractor
If the working arrangement is employment, then they’re an employee. Some businesses try to avoid their super or tax obligations by asking workers to obtain ABNs – this is illegal. Even a contract specifying the worker as a contractor doesn’t legally make them so. You should talk with your accountant about what kind of work they will be doing, how they will be paid and who will be directing the work to decide if you have a legal employee or contractor arrangement.
We’re only using them for a short three-month job, so they’re a contractor
Not necessarily. Employees can be for short terms or specific projects.
They’ve always worked in a contractor capacity – so they always will be
Working arrangements are always specific to every job. You may have had a contractor arrangement in the past, but this doesn’t preclude you from having to hire the worker as an employee in the future.
They submit an invoice so they’re a contractor
Submitting an invoice alone doesn’t make someone a contractor, according to the ATO. They require you to look at the entire working arrangement.
I only engage contractors so I don’t have to pay super
You may actually be required to pay your contractor super if you are paying someone wholly for their physical labour and skills and not to achieve a result. The ATO has a super guarantee eligibility tool to help you work this out. You might also have Workcover requirements as well.
If this sounds like a minefield that you have no idea how to navigate don’t worry. As your business accountant our team is here to help Toowoomba businesses ensure you’re engaging workers correctly. Call our team on (07) 4642 5800.