A lot of businesses around Australia are putting on workers as contractors/subcontractors instead of as employees. This has traditionally been done either due to a mistaken belief that (a) the employee is a contractor, or (b) for the business to save on costs that hiring an employee would entail e.g super contributions, workers comp, tax withholding etc.
The ATO have now released some new guides and information relating to the contractor/employee issue which will be of assistance to many business owners. Basically the tax office’s view of who is an employee and a business owner’s view of who is an employee are polar opposites and business owners need to exercise some caution. The penalties for getting it wrong include PAYG withholding penalty (which can be up to 100% of the tax you should have withheld, and in addition to it), super guarantee charge in addition to the super you should have been paying, and interest on top of all that. “Don’t get it wrong” is the message the ATO is sending loud and clear.
They have also made it clear that if a worker comes to you and insists on being treated as a contractor when in fact they would be an employee at common law and you go along with the scam then you will be breaking the law. Just because someone quotes you their ABN doesn’t mean they will automatically be deemed a contractor.
Now we all know that times are tough for business and that you need to reduce costs across the board, but if you are dressing up an arrangement to make an employee look like a contractor and you get caught it will be game over. The fines, payments in arrears of tax withholding and super, as well as interest will definitely add to your costs and could shut you down completely. It’s not worth the risk.
If you want to do the right thing, or are doing the right thing but want to make sure that your contractors are contractors according to the ATO then you need to call Tate at Boston Accounting today. Tate has extensive experience in managing business arrangements and has many successful small and mid size business clients that are flourishing during this current downturn in the economy.
