Recent High Court decisions on whether workers were employees or contractors have prompted the Australian Tax Office to release a new draft ruling and guideline.
The law has shifted significantly since the High Court decisions.
Businesses should seek advice to check whether previous classifications are still correct. Getting workers’ classification wrong may have significant impacts on PAYG withholding, superannuation, payroll tax and reporting obligations.
How do you determine if someone is an employee or a contractor?
At its core, the Draft Ruling says that an employee serves in the business of the engaging entity and works as a representative of the business. On the other hand, independent contractors provide services in furtherance of their own business enterprise and not the engaging entity’s business.
The two most helpful considerations are generally control and the extent to which a worker is seen to work in their own business, distinct from the business of the engaging entity.
The Draft Ruling also lists other common law points to consider, including whether:
- the individual presents as being part of the business;
- the individual has sufficient control over their operations or has the ability to delegate work;
- the arrangement is a ‘results’ contract;
- the individual provides their own tools and equipment;
- the individual bears any risk of the costs arising out of injury or defect in carrying out their work or;
- the contract expressly prevents the accumulation of goodwill.
You can limit the likelihood of the ATO reviewing your arrangements by following some simple steps outlined in its Draft Ruling and Draft Guideline. It can be complex, so if in doubt, contact a NatRoad Adviser.