As a business owner, it is important to understand the difference between employees and independent contractors. The distinction between the two can have a significant impact on your obligations and responsibilities, including paying and reporting tax, superannuation, and other entitlements for your workers.
Recently, the High Court has handed down two important decisions on the topic, placing a particular emphasis on the terms of the written contract between the individual providing services and the entity using those services. The High Court’s decision has prompted the Australian Tax Office (ATO) to issue a draft ruling explaining when an individual is considered an “employee” for the purposes of the PAYG withholding rules.
It’s important to note that the label attached to the arrangement between the parties is not the only factor considered. The previous Taxation Ruling on this issue has been withdrawn, and the ATO has also issued a draft Practical Compliance Guideline (PCG) outlining its compliance approach for businesses that engage workers and classify them as employees or independent contractors. This guideline sets out the ATO’s allocation of compliance resources based on the risk associated with the classification.
With these changes in mind, now may be a good time to check with your tax adviser to ensure that individuals providing services to your business are genuinely independent contractors, or if they are in fact employees. We can help you navigate these changes and ensure that your business remains compliant with the latest ATO guidelines.