Contractor or employee?

How do we determine worker’s status whether it is a contractor or an employee? Can we determine contractor status on the following assumptions only?

· Engaging workers for ad hoc or short period of time

· Having an ABN

· Paying your worker on an invoice

· Industry norms

· A written contract stating the worker is a contractor

ATO introduced Employee/contractor decision tool on their website this year. Every situation is different to determine worker’s status. Basically you will need to check the following additional characteristics below. More complicated situation may be determined by requesting a private ruling from ATO.

Correct decision will save your business from future potential ATO audit. Most of ATO audit is brought up by disgruntled past employees with unpaid entitlements. Wrongfully engaging your employee as a contractor may result in paying unpaid entitlements (such as superannuation, leave entitlement, withholding tax and etc.) and penalties.

Characteristics of employees and contractors.

An employee

· Works in your business, for your business

· Cannot delegate or sub-contract the work out

· Is paid an industry award, hourly rate, commission or a price per item or activity

· Is supplied with the necessary tools & equipment

· Takes no personal or commercial risk for work done or not done

· Works directed hours and has work to complete

A contractor

· Operates their own business

· Has ability to sub-contract or delegate

· Basis of payment is completion of the job based on a quoted amount

· Use own equipment, tools and other assets

· Takes commercial risks

· Has control over work done