Business owners need to be aware of the difference between an employee and a contractor so that they are able to meet their appropriate tax and superannuation requirements.

BLOG: Contractor or Employee?

It is illegal for businesses to incorrectly treat their employees as contractors. This is because it allows businesses to unlawfully reduce their labour costs (for instance, superannuation costs) and gain an unfair advantage over their competition.

In general, an employee:

  • performs work under the direction and control of their employer
  • bears no financial risk
  • has income tax deducted by their employer and works for a salary/wage
  • is entitled to have superannuation contributions paid into a nominated fund by their employer

A contractor:

  • has a high level of control on how and when they complete work
  • bears responsibility and liability of poor work and may need to repair/rework at own cost
  • pays their own superannuation
  • pays their own tax and GST to the ATO
  • generally has an ABN set up

Businesses need to be aware that incorrectly treating an employee as a contractor can result in financial penalties and charges, such as the PAYG withholding penalty and superannuation guarantee penalty.

The ATO is using a combination of education and compliance action to ensure that all businesses are on a level playing field and classifying their workforce correctly.

If you think you may have employees or contractors that are wrongly classified, or if you just want some assistance in making sure you are following the correct protocols in your reporting, please do not hesitate to speak to us at Ganrid Consultants on (03) 9793 7233 as soon as possible and have the situation rectified to avoid any potential penalties.