The difference between an employee and an independent contractor has been an issue causing much confusion amongst small business for a long time.
Some of the more common industries we find that are caught up in this confusion include building and construction, cleaning, road transport, engineering and information technology industry (IT).
The Australian Taxation Office has been on the record saying while most business try to do the right thing, some deliberately treat their employees as contractors to illegally lower their labour costs by not withholding tax or paying the superannuation guarantee.
Some of the Common Myths are:
- Having an Australian Business Number (ABN) does not necessarily mean a worker is a contractor, if the working arrangements are that of an employee an ABN will not make any difference.
- Working arrangements determine the status of employment/contractor not the amount of time they work, therefore whether it is short term or irregular makes no difference.
- Assumptions have been made that others in similar or the same industry are doing the same, therefore the workers are considered contractors. This is incorrect and makes no difference. It is the working arrangement that determines if workers are employees or contractors.
- Because a contact or agreement is in place makes no difference, this will not make workers a contractor for a job. If the working arrangement is employment, a contract or agreement stating the worker is a contractor won't override this employment arrangement or change the obligations the business needs to meet.
- Submitting an invoice for work done or being "paid on invoice" does not determine a contractor arrangement and thus makes no difference. The working arrangement determines whether they are an employee or a contractor, not whether they submit an invoice.
Various factors contribute in determining whether businesses are hiring an employee or contractor with set respective compliance and financial implications.
The table below provides a brief insight into defining an employee vs contractor. Should you require further information on the status of your employment process, contact your JPR representative for further clarification.