Employee or Independent Contractor? — new ATO guides released

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The ATO identifies a number of misconceptions about circumstances that people may consider automatically make a worker a contractor. For example, the Guides point out that even if the following factors are met, the relevant worker could still be an employee:

• the worker has an ABN;
• the worker submits an invoice for their work;
• there is a prevailing industry practice; or
• specialist skills or qualifications may be required.

Myth: Building and Construction

The ATO issued a guide tailored to the building and construction industry. In that guide, the ATO identifies the following further characteristics that, in that sector, do not alone make a worker a contractor. For example, it is not determinative that:

• the work is project based;
• the worker is only required for a defined period of time; or
• the worker has previously worked as a contractor on the same job.

Reality: Common employees

There are also some classes of workers whom the ATO considers will always be defined as employees due to the characteristics of their role. These include apprentices, trades assistants and labourers — regardless of whether they are skilled, unskilled or semi-skilled.

Getting it right

Penalties

The Guides are part of a combined ATO strategy of education and enforcement aimed at preventing organisations from incorrectly treating employees as contractors. As well as providing guidance as to the correct definition of a contractor, the Guides remind organisations of the penalties that apply if an employee is incorrectly treated as a contractor.

These penalties include:

• PAYG withholding penalties of up to 100% of the amount that should have been withheld;
• interest charges; and
• superannuation guarantee charges including superannuation shortfall amounts and applicable interest and administration fees.

Practical tools

The ATO cautions organisations against giving in to a worker who demands to be treated as a contractor. In that case, the ATO encourages organisations to instead refer the worker to the ATO's Employee/contractor decision tool and the Guides. The ATO also encourages an organisation's competitors to report concerns about incorrect treatments of workers.

Contracting with an employee or contractor

An organisation should consider the Guides and the ATO's Employee/contractor decision tool before finalising the terms on which it engages any worker.

An organisation can arrange a contract with the employer or contractor using either the Cleardocs Standard Employment Contract or the Independent Contractor Agreement, whichever is relevant, to set out the terms of the worker's engagement. Both of these agreements can be extensively tailored to meet the needs of the organisation and the individual worker.

Links to the Guides

You can access the full Guides below:

1. Apprentices and trainees are employees, not contractors;

2. Building and construction industry - how to determine if workers are employees or contractors;

3. Common myths about the employee/contractor decision;

4. Employee or contractor? Get the facts;

5. How to determine if workers are employees or contractors;

6. How to report a business incorrectly treating employees as contractors;

7. Know the difference between employees and contractors;

8. Promoting a level playing field for business; and

9. When a worker asks to be contractor.

More information from Maddocks

For more information, contact Maddocks on (03) 9288 0555 and ask to speak to a member of the Employment or Superannuation teams.

More Cleardocs information on related topics

You can read earlier ClearLaw articles on HR topics here.

Order Cleardocs Employment & HR document packages

• HR Policies and Procedures Manual
• Standard Employment Contract
• Independent Contractor Agreement