Are Your Contractors Actually Employees?

Are your contractors actually employees? Here are eight tips to help you find out…



Keeping up with Australia’s employment, tax and workplace laws, can be tricky business. And with an exploding number of organisations hiring contractors – instead of employees – many run the risk of breaching employment legislation and coming unstuck with the tax department.

So for example, if you’ve got long-term contractors in your business, who the ATO may instead classify as employees, then you may end up in hot water.

And that’s not good for anyone…..

So….to work out if you’re toeing the line of employee and ATO legislation, we’ve done the legwork for you: this employee compliance checklist will keep your business in the ATO’s good books.

Does the worker have a registered business and an ABN?

It helps if they do. If not, it’s going to be harder for you as an employer, to get the all-clear and have your Contractors deemed Contractors.

However, even if they do have both, it doesn’t mean your responsibilities as an employer are complete….read on.

Are you directing only the result of the contractor’s work?

Or are you also directing HOW they deliver it, and WHEN they deliver it?

Engaging independent contractors means your focus as the ‘payer’ is purely on the outcome. HOW and WHEN they deliver it, isn’t your responsibility

However, in the agreement, the Contractor can determine the hours required to achieve the expected results

Do you stick to the specific deliverables outlined in the contract between your business and the Contractor?

Or do you brief the Contractor on additional work within their skills & ‘job function’?

If additional work OUTSIDE of the agreed contract is allocated to your Contractor, this could result in the Contractor being deemed an employee. So….be very clear and transparent in your paperwork and your agreement with the Contractor

Also keep in mind – if the contractor believes they’re unable to reject additional work issued by you, they’ll be considered an employee

Who supplies the equipment for the Contractor to deliver their work?

If the contractor uses their own equipment – like a laptop, mobile phone and data storage – to achieve the required results, then you’re all good. BUT…. if you stipulate that the Contractor must use company equipment, this won’t work in your favour.

How is the Contractor paid?

If you’re paying them on a regular basis, like a wage, they’re not a Contractor. Instead, the Contractor needs to issue you with an invoice for their work milestones, for you to remit as agreed

Can your contractors delegate work?

If the contractor is able to delegate work to other parties – as in, third party sub-contractors – they’ll be in a good position to be deemed a Contractor.

Who takes care of tax & Super?

If you’re deducting tax from the worker’s remittance, and you’re paying their superannuation, then you might have yourself an employee. Contractors should take care of their own tax & Super responsibilities

What about Leave? Such as annual, sick, long-service?

Make sure you’re not paying your Contractors for ANY category of leave. You’re breaking the rules of engaging Contractors if you do

Keep in mind, when you engage contractors, you can’t always pick & choose from the above: depending on your individual situation you may need to comply with ALL the issues, plus more. Contact us if you ‘d like to learn more

Why not take this Independent Contractors Decision Tool Test provided by the Federal Government, for further peace of mind?

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