Insights on Tax Reporting
Tradies Guide - Employee or Contractor
Employee or Contractor - the ongoing debate that is had virtually daily in the building industry.
Lets face it - the ATO and the government don’t like individual contractors.
They are looking after worker rights which is totally fair and reasonable. I am pretty sure every business would be engaging contractors rather that employees if they could - don’t have to pay super; don’t have to withhold and remit tax; pass on more responsibility to them (share the risk); get rid of them at any time.
There are a lot of business owners (particularly tradies) who are engaging contractors as it simply suits the way projects are completed. But really they are an employee. The relationship between you and your worker might be perfectly happy, but this won’t stop the ATO stepping in and changing the relationship. Here are a couple of guidelines to assist you in understanding whether your worker is an employee or a contractor.
- Just because the worker has an ABN doesn’t mean they are a contractor. This is NOT a defence that the ATO accept!
- If you allow your worker to employ staff to complete the job, this is a sign that your worker is most likely a contractor.
- Always ask your worker to quote on a specific job or result and pay that amount when the job/milestone is completed. Quotes which itemise hourly rates or price per item (such as $1.20 per brick) suggests they are an employee.
- If the worker is providing the majority of the equipment, tools, plant and motor vehicle needed to complete the work they most likely are a contractor.
- All defects or errors fixed up by the worker free of charge would suggest the worker is a contractor (engaged to achieve a result).
- If you have a written agreement with your worker which outlines obligations, responsibilities and allows the worker to engage other people they are likely to be a contractor. A standard template for all workers is not too hard to use.
The consequences for getting this wrong can be quite expensive for an employer. You may be required to pay superannuation for your contractors, even though you are paying a contract rate much higher rate than a normal wage rate. In addition, the ATO could also charge interest and penalties.
There is an Employee or Contractor Decision Tool on the ATO website which the ATO auditors use to help determine whether contractors are rather really employees. We recommend that you run all your contractors through the tool to see if they really are a contractor.
Unsure? Need help to decide? Contact Clifton Accountants now.
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