Employers that incorrectly treat employees as contractors can face hefty penalties and charges as well as claims for entitlements and superannuation contributions. Even if employers are only hiring someone for a few hours or a couple of days at a time, it must be established whether they are employees or contractors to get tax and super requirements right.
When hiring an individual, it is the details within the working agreement or contract that determines whether they are a contractor or employee for tax and super purposes. The agreement or contract the business has with the worker can be written or verbal.
Workers such as apprentices, trainees, labourers and trades assistants are always treated as employees. In most cases, apprentices and trainees are paid under an award and receive specific pay and conditions. Employers must meet the same tax and super obligations as they would for any other employees of the business.
Companies, trusts and partnerships are always contractors as an employee must be a person. If a company, trust or partnership has been hired to work, then it is a contracting relationship for tax and super purposes. The people who actually do the work may be directors, partners or employees of the contractor.
Sham contracting arrangements, where an employer attempts to disguise an employment relationship as an independent contracting arrangement, are illegal and breach the Fair Work Act 2009. Under the sham contracting provisions of the Fair Work Act 2009, an employer cannot:
- Misrepresent an employment relationship or a proposed employment arrangement as an independent contracting arrangement.
- Dismiss or threaten to dismiss an employee for the purpose of engaging them as an independent contractor.
- Make a knowingly false statement to persuade or influence an employee to become an independent contractor
Employers who engage in sham contracting arrangements can face serious penalties for contraventions of these provisions. The courts may impose a maximum penalty of $54,000 per contravention.