Employees Disguised as Contractors
May 29, 2014

If contractors make up part of your human resources, they may be due the same entitlements as your employees. Professional advice can help you determine whether your contractors could actually be considered employees, in the eyes of the law. Failure to understand the distinction could see your business hit with hefty penalties, not to mention back-paid entitlements to the tune of thousands of dollars.

Consider any contractors you currently have on the books and ask yourself the following questions:

  • Do your contractors have a desk and computer in your office and are they given access to confidential business data like private passwords?
  • Do you ‘act’ as their employer, overseeing their duties and offering guidance where necessary?
  • Did you and your contractor verbally agree to an hourly rate of pay that may be invoiced and received as a gross sum without putting in place a binding contract outlining the terms of employment?
  • Do you have long-standing contractors with whom you have not re-negotiated terms for some time?

If you answered yes to any of the above considerations, we recommend you seek professional advice to determine whether or not the Australian Taxation Office (ATO) could determine that your contractor is in fact, an employee.

Notably, the distinction between contractor and employee is complex and may vary from business to business. Likewise, the ramifications of blurring the lines between the two classifications may lead to wide-ranging (and costly) consequences.

For instance, should a former contractor achieve success in lodging a Superannuation Guarantee Shortfall Statement with the ATO, if the company who engaged them, is actually considered an employer, the company could face a fine and be required to provide financial remuneration in the form of backdated superannuation contributions (with interest) as calculated according to the duration of the claimant’s tenure. In some cases, this figure could equate to several hundred thousand dollars.

If you are unsure which category your workforce falls into, talk to your BrentnallsNSW accountant to help you to shore up the arrangements surrounding your outsourced labour.

Nick Aston

Nick delivers clarity to the complex financial affairs of business executives, entrepreneurs and high-net-worth individuals, through the crafting of holistic solutions that address taxation, accounting and succession planning needs.