The ATO have for a long time been implementing measures to ensure that contractor arrangements are legitimate business dealings. The ATO in their 2011/2012 audit program found that 48% of those businesses reviewed were incorrectly treating employees as contractors (The Taxpayer, October 2012).

There are a number of reasons why employers may be treating employees as contractors. Often it is merely a mistake but it can also be because the employer is attempting to remove the need to pay Superannuation Guarantee Charges, Workcover, Payroll Tax, PAYG Withholding, is not wanting to provide leave and sickness entitlements, and also may want to have the ability to cease the contract when desired.

However many employers need to be aware that they may still be required to allow for some of the above entitlements even in the person is a contractor. Some of the tests to assist in deciding if a worker is an employee or contractor include:

  • Control of Work
  • Ability to sub-contract or delegate tasks
  • Method or basis of payment
  • Provision of equipment, tools and other materials
  • Rectifying loss/commercial risk
  • Independence

For a more detailed analysis see the Tax Office Fact Sheet – ‘Know the difference between employees and contractors‘.

Avenues the ATO have undertaken to identify and remedy the situation where employees are being treated as contractors include the Personal Services Income (PSI) rules and more recently, the Building & Construction Industry Contractor Reporting obligations which were bought in from 1 July 2012 for businesses in the Building & Construction Industry. For further information about this new reporting obligation click here.

To assist business owners in determining if a worker is classified correctly the ATO have produced an online tool – It can be accessed at www.ato.gov.au/employeecontractor.

Should you require any assistance in determining the status of your workers please contact us at Green Taylor Partners.


Liability limited by a scheme approved under Professional Standards Legislation