Employees and Contractors

When engaging a new worker in your business, you should check if they are an employee or contractor before entering into any agreement or contract. If you've previously engaged a worker without checking whether the arrangement is employment or contracting, you should review your earlier decision now to make sure you got it right.

To correctly determine whether a worker is an employee or contractor, you need to look at the whole working arrangement and at the individual circumstances for each person you're engaging. The ATO has an Employee/Contractor decision tool on their website. The tool will provide a decision based on answers to some simple questions. You can also print the results to keep for your records. Your business will need to keep records to support your decision on whether your worker is an employee or contractor and the factors you relied on.

A worker isn't automatically a contractor just because they have an ABN or specialist skills or you only need them during busy periods. Employees work in your business and are part of your business. Contractors are running their own business.

Your tax, super and other government obligations will vary depending on whether your worker is an employee or contractor. In some industries it's common for businesses to incorrectly treat their employees as contractors for tax and super purposes. Just because everyone in an industry uses contractors doesn't mean they are right.

Some types of workers are always employees. If you engage any of the following types of workers you need to treat them as an employee:

• apprentices;
• trainees;
• company directors;
• labourers; and
• trades assistants.

You may believe that engaging a worker as a contractor will save you time and money. However, if the relationship is really employment, it may end up costing your business a lot more as you may face penalties for failing to comply with your tax and super obligations for your worker.

APPRENTICES AND TRAINEES ARE EMPLOYEES FOR TAX AND SUPER PURPOSES

If you are considering taking on an apprentice or trainee, you will need to add them to your PAYG withholding, super and fringe benefits tax (FBT) obligations.

An apprentice or trainee will always be an employee. They are not running their own business. While they are in training they are required to work under your direction, control and supervision to earn their qualification, certificate or diploma. They are usually covered under an award and receive specific pay and conditions. By the very nature of the arrangement, apprentices and trainees are employees.

While your apprentice or trainee may already have their own ABN they can't use that ABN as part of their apprenticeship or traineeship.