Published DECEMBER 14, 2011 in TAX-AND-BUSINESS - comments

However, 'employing' these staff creates tax obligations which can be confusing for business owners.  I write 'employing' in apostrophes because often it isn't clear from a tax perspective whether a worker is an employee or an independent contractor.  This distinction can have very significant consequences (such as on PAYG Withholding which I will discuss in Part 2 and on superannuation obligations which I will discuss in Part 3) so it is vital that you get it right.  Read on to learn if the person you thought was an independent contractor might actually be your employee.

In most cases it will be obvious when somebody is an employee.  For example, I work under the direction and control of Lanyon Partners.  I am obligated to work at regular times and in a particular place and am paid regular, fixed amounts for my time rather than for achieving a particular result.  Lanyon Partners supplies me with the tools I need to do my job and it is Lanyon Partners, not me, who is ultimately responsible if I make a mistake.  Unfortunately, no matter how much I'd like to, I can't outsource the tasks I don't enjoy to somebody else.  I am, without a doubt, an employee.

However, not all cases are so clear cut.  I refer to Crisis Bicycle Couriers and more recently Roy Morgan Research (which will now need to pay hundreds of thousands if not millions of dollars after losing their High Court appeal).  Thankfully, common law and ATO rulings have provided us with a list of factors to consider.  It is important to note that the legal form of the contract or agreement with the worker isn't one of the factors.  Simply put, agreeing to call somebody a contractor doesn't make them so if they weren't already.  The more important questions to consider will depend on your particular circumstances but may include:

• Is the worker free to do the work how, when and where they think is best or must they follow instructions?
• Is the worker operating on their own account or as part of the business of the payer?
• Is the worker paid to achieve a particular result or outcome or for their time spent on the job?
• Is the worker allowed to delegate or subcontract the work to others or must they complete it themselves?
• Does the worker or the payer bear the risk of injury or defective work?
• Does the worker supply any necessary tools and equipment?

If you've just read that list and are not certain of the consequences it is time to contact your adviser at Lanyon Partners.  If you'd like to ensure that you are withholding the right amount of tax from payments to your employees or contractors and that you are meeting all your obligations rreqgarding superannuation simply stay tuned for Parts 2 and 3 which will be posted in the New Year.