If your business engages and pays any workers at all, it’s important to know the difference between an employee and a contractor. So with the end of the tax year just around the corner, it’s a great opportunity to review the status of your labourers.
Whether you outsource to remote or virtual workers, or have people come in on-site, it’s imperative to know your rights and obligations. Here is some great information to get you started.
Why Do I Need To Know This?
As a business owner engaging workers, you are obliged to ensure you are meeting all of the correct requirements for your company. You can face significant penalties and charges if you incorrectly report the situation.
Just because a worker has an Australian Business Number, does not mean that they are necessarily a contractor. Determining the correct situation can save you in the long run, both in time and in money.
How Do I Know The Difference?
A contractor runs their own company, and provides services to your business. An employee works within your business, and is a part of your company.
If you are unsure, this online decision tool can help answer your questions about the working situation you are unsure of, and find out whether your worker is an employee or a contractor.
When Should I Check This?
The best time to check whether your workers are employees or contractors is when you first engage them for their services, before entering into any contract or agreement. If you fail to do this, or get it wrong, the repercussions can be significant.
For example, in the case of engaging a contractor when they are actually an employee, you risk having to meet tax and super obligations from the date they first started working for you.
What Else Do I Need To Do?
It is important to record any agreements made, and ensure that they accurately reflect the conditions of the working arrangement. Keeping good records will also support any future claims regarding your decision.
To ensure that you are making the right decision regarding tax and super for your workers, consult your tax agent or local governing body about your situation.
For further reading, please also visit the Australian Taxation Office on this topic.
Disclaimer: The above information pertains to Australian Tax Law. If you are unsure about your situation, contact your local governing body or tax agent.