Tax Accounting:
Are You An Employee Or Contractor?

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The ATO has recently released a publication about the common misconceptions of whether a worker is an employee or contractor.

Six Common Misconceptions About Contractor Status

We have highlighted below six of the more common cases.

Having an Australian business number (ABN)

Myth: If a worker has an ABN they are a contractor.

Fact: Having or quoting an ABN makes no difference to whether a worker is an employee or contractor for a job.

To determine whether a worker is an employee or contractor, you need to look at the whole working arrangement and examine the specific terms and conditions under which the work is performed.

Common industry practice

Myth: Everyone in my industry takes on workers as contractors, so my business should too.

Fact: Just because 'everyone' in an industry uses contractors does not mean they have correctly worked out the decision.

Short-term work

Myth: Employees cannot be used for short jobs or to get extra work done during busy periods.

Fact: The length of a job (short or long duration) or regularity of work does not make any difference.

80% rule

Myth: A worker cannot work more than 80% of their time for one business if they want to be considered a contractor.

Fact: The 80% rule, or 80/20 rule as it is sometimes called, relates to personal services income (PSI) and how a contractor reports their income on their own return and determines what deductions they are entitled to.

Registered business name

Myth: If a worker has a registered business name, they are a contractor.

Fact: Having a registered business name makes no difference.

Contracting on different jobs

Myth: If a worker is a contractor for one job, they will be a contractor for all jobs.

Fact: If a worker is a contractor for one job, it does not guarantee they will be a contractor for every job.

The working arrangement and specific terms and conditions under which the work is performed will determine whether a worker is an employee or contractor for each job.

Depending on the working arrangement, a worker could be an:

Paying super

Myth: My business should only take on contractors so we do not have to worry about super.

Fact: A business always needs to look at the working arrangement and examine the specific terms and conditions under which the work is performed to determine whether a worker is an employee or contractor.

A business cannot decide to treat a worker as a contractor when they are an employee.

As tax accountants, when we are determining for a client whether a worker is a contractor or employee, we review the entire working arrangement, examine the terms and conditions of the contract, and any other factors that will influence the decision. For more information refer to the ATO fact sheet or call Travis Allen of this office.

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Contact us today for Tax Advice within Melbourne or email travis@hillyerriches.com.au.

This article is for general information only and should not be relied upon without first seeking advice from an appropriately qualified professional.

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