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Is Contracting the Best Option for you?

Aug 16, 2018 | Business, Taxation

Contracting work is on the rise. Contractors or temporary workers will comprise at least 20 per cent of the Australian workforce by 2022.

Why contract?

As businesses look for lower overheads and greater flexibility, contracting may a great solution. What will happen is that employers would  hire the resources they need, when they need them, without taking on the associated infrastructure and Taxation overheads required for permanent employees.

That means employers of contractors don’t need to:-

  1. meet pay-as-you-go (PAYG) tax,
  2. payroll tax,
  3. fringe benefits tax,
  4. workers’ compensation insurance
  5. Superannuation guarantee.

In 2018, the FWO has reported that the misclassification of employees as contractors is a persistent issue within many industries in Australia so what are the consequences should you get it wrong.

If the court or the Fair Work Ombudsman determines they’re really an employee, there are provisions under the Fair Work Act 2009 which state that :-

  • You could  to be prosecuted for breach of the award.
  • Businesses may also be held legally responsible, through accessorial liability laws, if a contractor – or subcontractor – is found to be underpaying staff.
  • If Accountant or lawyer are involved, they could also be prosecuted for aiding and abetting.

Put to the test 

Unfortunately for businesses and workers alike, the distinction between employees and independent contractors is rarely immediately clear, there is not a singular factor used to determine whether a worker is an employee or an independent contractor. Just because a worker has an Australian Business Number [ABN] or issues invoices, doesn’t automatically make the worker an independent contractor.”

The ATO has highlighted some common indicators that may help to ascertain a person’s employment status including

  • The degree of control they have over work performed
  • Whether hours are standard or set by the employer (as opposed to negotiation)
  • Expectations from work performed (i.e. ongoing or for a specific task)
  • Superannuation, holiday & paid leave entitlements
  • Provision of tools and equipment (by the employer or provider)

It’s not uncommon for businesses that fail to fully appreciate the key distinctions between the two working arrangements to find themselves in hot water –  so it is imperative all terms of engagement are recorded in a written contract before the start of an arrangement, and that both parties sign it. Even if you have already engaged, it’s not too late to enter into a written contract and acknowledge that it applies retrospectively.

DGL can help.

There are some simple guidelines offered by the ATO and FWO so let DGL help in getting your contracting right!