Earlier this year, the Australian Taxation Office (ATO) has provided guidelines as to how it will interpret the High Court decisions in CFMMEU v Personnel Contracting Pty Ltd and ZG Operations Australia Pty Ltd v Jamsek when determining whether a worker is a contractor or employee.
The High Court decisions shifted the focus from the multifactorial approach to the totality of the relationship between a worker and an employer, which consists of their respective rights and obligations arising from the relevant contract.
Whilst the same indicia previously used by the ATO are no longer used, they are still relevant in determining whether a worker is working within the business through the lens of the parties’ rights and obligations.
The ATO’s guideline can be viewed here.
In summary:
- Apprentices, trainees, labourers and/or trade assistants are always to be treated as employees
- Companies, trusts and partnership are always contractors
- Individual workers will be determined by the agreement or contract for the purposes of tax and superannuation.
Notwithstanding the aforementioned, a key determinant for classifying a worker as an employee or contractor rests on the question of “does the worker serve in your business as a representative, or do they provide services to your business with the purpose of furthering their own business?” It is for this reason why the indicia are still relevant, however must be interpreted through any rights and obligations existing under contract.
It is important for businesses to ensure they classify their worker relationships correctly, as the consequences can be significant. The ATO is cracking down on mischaracterised arrangements and can go as far back as 1992 when employer sponsored superannuation started. Similar implications apply in relation to unpaid PAYG Withholding on “wages”, WorkCover, payroll tax or other income tax if a relationship has been mischaracterised and serious penalties may be applied.
Do you want anymore information regarding employees and contractors?
If you believe you are at risk, or you are uncertain as to whether a worker is an employee or contractor, feel free to contact our team.
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