You may think that your workers are contractors because they invoice you – but this is a myth.
Receiving an invoice from a worker is not a deciding factor on whether they’re an employee or contractor. You need to consider the whole working arrangement so that you are clear on your tax and super responsibilities for them.
Be careful! There are myths about what makes someone a contractor such as:
- having an ABN;
- only being needed for short term work;
- simply agreeing to the arrangement;
- invoicing you for work; or
- everyone else in the industry calls them a contractor.
It turns out that none of these things by themselves determine whether someone is a contractor or employee. There are rules and every working arrangement may be different.
The ATO is able to help and has made it really easy to check your working arrangements. You can use the ATO’s Employee/contractor decision tool to answer some questions about your working arrangement and get an answer you can rely on.
Even if you’re pretty sure about your current or future working arrangements, you can double check with the ATO’s decision tool and be certain you’ve got it right. So how do you get it right with your workers?
Employee/contractor decision tool
You can use the ATO’s Employee/contractor decision tool found at www.ato.gov.au/Calculators-andtools/Employeeor-contractor, to get a quick and reliable answer. The tool will tell you if your worker is an employee or contractor for tax and super purposes and what this means for your business. Whilst the decision tool is not designed for labour hire firms or individual workers, it is aimed for use by businesses that engage and pay a worker.
What the decision tool gives you
After answering some questions about the working arrangement between you and your worker/s, you will receive a report:
- outlining whether your worker is an employee or contractor for tax and super purposes; and
- detailing the tax and super obligations you need to meet. Provided your responses accurately reflect the working arrangement, you can rely on the result provided by the tool. It is a record of your genuine attempt to understand your obligations for your worker/s and would be considered if the ATO reviews your working arrangement in the future.
For record keeping purposes the ATO asks you to keep a copy of the result provided by the tool.
The information you provide and the answers you select are not stored. You will remain anonymous at all times.
The Employee/contractor decision tool:
- uses the information you provide to outline your tax and super obligations;
- is based on the outcomes of court cases that considered various indicators to establish whether a person is an employee within the common law meaning of the term; and
- does not consider other obligations – for example, payroll tax or WorkCover obligations. If you’re still unsure about your circumstances you should seek independent advice or request a private ruling.
You can also register with the ATO for a free, interactive Employee or contractor webinar to help you understand your obligations in more detail.