Contractors vs. Employees

Welcome to a new Tolerable Tax update! Contractors v Employees… maybe not exciting as Batman v Superman, but just as deserving of your attention.

Recently the ATO announced the launch of an education campaign focused on ensuring that taxpayers/businesses are meeting their superannuation, pay as you go (PAYG) and fringe benefits tax (FBT) obligations. The ATO is focusing on a number of industries, including businesses in the bakery, supermarket, car retailing and computer system design industries. It is important to consider that even if your industry is not the “focus” of this current campaign, such announcements serve as good reminders to assess your own compliance obligations!

Consider this (absolutely real life!) situation:

Bruce is a forensic accountant. He has been engaged by Kent Industries Pty Ltd (an Australian private company) as a contractor at the request of the company. Bruce was not engaged in relation to a specific task and does not have an end date to his arrangement with Kent Industries Pty Ltd. The company provides Bruce with an office and all equipment and software required to perform his duties. The company requires Bruce to work 37.5 hours per week and provides 1 hour for lunch per weekday. Bruce cannot subcontract any of his duties. Bruce does not provide these services to any other parties (given he is effectively full time with Kent Industries Pty Ltd!). Bruce is paid on a monthly basis. The payments to Bruce do not include superannuation guarantee. The company provides Bruce with a car (for travel to and from Bruce’s home and the office) but does not pay Fringe Benefits Tax on these benefits.

Questions: Is Bruce a contractor or an employee? Is Kent Industries Pty Ltd exposed to superannuation guarantee, pay as you go (PAYG) Withholding and Fringe Benefits Tax (FBT) obligations?

Whilst you may not have an example as extreme as the one posted above, I would encourage you to review your current arrangements with contractors. Are these contractors actually employees? Are you exposed to possible superannuation, PAYG, and FBT? I note that the ATO has a free decision-making toolkit, to help guide taxpayers/business with determining whether contractors are actually employees.

As always, let me know in the comments if you would like a particular topic discussed in a future installment of TT and I will do my best to accommodate! Please remember, Tolerable Tax does not contain specific advice. For specific advice, I would encourage you to talk to your advisors or contact me or any of my team at DFK Gooding Partners.

Until next time… may your tax be ever tolerable!