Scott Associates advises employers to be very vigilant about how they identify their workers for tax and superannuation purposes. The ATO has recently issued nine guides for determining whether workers are employees or contractors. The ATO has put the gloves on and is preparing to get into the ring with employers to enforce the distinction.
Contractor versus employee has been an issue for many years because this difference in worker status has tax and superannuation implications for both the worker and the business. In simple terms the ATO assesses the relationship as a whole and not just the terms of the arrangement. They make the simple distinction that employees work in your business and are part of your business whereas contractors run their own business and provide services to your business.
The ATO’s nine guides are part of its awareness campaign to educate employers. The guides have also been released with an employee/contractor decision tool. The online tool uses questions to work out if a worker is an employee or contractor. Have a look at the calculator.
The ATO’s intentions are very clear. The ATO has seen organisations and individuals manipulating the status of the worker to minimise their tax and to reduce superannuation payments. The ATO is matching the education program with enforcement and may impose penalties if you don’t conform with the position laid out in the guidance material.
The ATO is also cautioning business owners against giving in to workers who demand to be treated as contractors. They advise organisations to refer the worker to the employee/contractor decision tool and to the guides. The ATO is also encouraging competitors to report other businesses that are incorrectly treating workers.
The penalties that the ATO may impose include: PAYG withholding penalties (of up to 100% of the amount that should have been withheld); interest charges; and superannuation guarantee charges (including superannuation shortfall amounts and applicable interest and administration fees).
So if you want to avoid a bloody nose on this issue make sure that you identify employees or contractors correctly.