Contractor or Employee? Find out here

BALLARAT, Australia - Jan. 16, 2022 - PRLog -- When engaging contractors, businesses must contend with a myriad of complex rules and obligations.

Complexity coupled with an increased compliance focus from the ATO and others, mean that businesses need to be across the issues to avoid unexpected liabilities.

The purpose of this blog is to provide an overview of the issues that businesses need to be across.

Pay As You Go Withholding and Superannuation Guarantee

Employers are required to withhold tax from wages paid to employees and to make superannuation ( contributions on behalf of those employees at a minimum prescribed rate.

Failure to meet these obligations can result in significant tax obligations accompanied by penalties and interest.

In both the Pay As You Go (PAYG) and Superannuation Guarantee ( (SG) legislation, the definition of employee is derived from the term's common law meaning and is a case of substance over form.

Calling a person a contractor does not make them a contractor.

Furthermore, the SG legislation extends the definition of an employee to include a person who enters a contract wholly or principally for their labour. This captures arrangements where:
  • The contractor is remunerated (either wholly or principally) for their labour and skills;
  • The contractor must perform the work personally; and
  • The contractor is not paid to achieve a result (E.g they are paid for hours worked).

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The ATO sets out its views as to when a contractor will be regarded as an employee in TR 2005/16 ( and SGR 2005/1. (

The following are the relevant factors for consideration:
  • The terms and the circumstances surrounding the formation of the contract;
  • Control of the contractor by the hirer;
  • Whether the worker operates on their own account or in the business of the hirer;
  • Whether the contractor is paid to achieve a result;
  • The contractor's ability to delegate or subcontract;
  • Whether the contractor bears any risk;
  • Whether the contractor provides tools, materials, etc;
  • The hirer's right to suspend or dismiss the contractor;
  • The hirer's right to exclusive services;
  • Whether there is provision of benefits that are usually associated with employees. Eg annual leave, sick leave; and
  • Whether the contractor is required to wear the hirer's uniform.

The fact that most contractors will have an Australian Business Number (ABN) has no bearing on the determination of the person's status as employee versus contractor.

Where a contractor operates through a structure ( such as a company ( or trust (, the PAYG and SG legislation will not have application. In this respect, it is important to ensure that the documentation surrounding the arrangement clearly demonstrates that the engaged party is the company or trust and not the individual.

Anne Mart
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Location:Ballarat - Victoria - Australia
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