As an employer, it is important to determine whether your worker’s status is classified as an employee or an independent contractor. What are the distinctions between the two options?

Here are some points to consider.

• Employees are defined as individuals who perform work for a company, while companies, partnerships, or trusts are considered contractors.
• Certain individuals consistently serve as employees, including apprentices, trainees, laborers, and trades assistants.
• If you have engaged a worker through a labour hire or recruitment agency and compensate the agency for the services provided in your business, it is understood that your business has entered into a contractual agreement with the labour hire firm.

What are the duties and obligations that come with being the owner of the business?
If your worker is considered as an employee:

• Deduct tax (PAYG withholding) from their earnings and report and remit the deducted amounts to the appropriate authorities.
• Ensure timely payment of superannuation contributions, on a quarterly basis, for all eligible employees.
• You are required to report and remit fringe benefits tax (FBT) if you offer fringe benefits to your employees.

If your worker is considered as a contractor:

• It is common for contractors to manage their own tax obligations. Therefore, you do not need to withhold taxes from their payments unless they fail to provide their ABN or if there is a voluntary agreement in place to do so.
• You may still be required to provide superannuation contributions for individual contractors if the primary focus of the contract is for their services.
• You are not required to comply with Fringe Benefits Tax (FBT) obligations.

Credits

Naveen A, Services Management Team