Employee Vs Contractor

Employing staff is one of the most stressful parts of being in business. 

Nobody does it like you! Nobody knows your business like you, and can you really trust someone else to represent your business. But leaving the decision too long risks you being overworked, and leaving little time to train or onboard your new employee.

When you do employ, it’s important to ensure you set it up correctly from the beginning of the contract. Will you employ an employee? Will you take on a contractor for a short period of time or a specific project? The options are varied, and the rules are numerous.

Payroll audits don’t stop at just employees, pay rates and superannuation compliance. Often the auditors assess your suppliers to ensure any contractors are being paid for their services correctly. It is a requirement to maintain payroll records for 7 years! That’s because audits could request documentation for historic payroll going back 7 years.

Employees, whether full time, part time or casual, will be entitled to conditions as set out by Fair Work Australia and the NES. These conditions are a minimum and include certain entitlements for permanent employees, and some for casuals. Contractors must operate under their own ABN, and can include subcontractors, consultants and independent contractors. They can operate as sole traders (individuals), companies, partnerships or trusts.

There are two tests to determine whether you have employed an employee or a contractor.

The first is to satisfy the ATO with regards tax and super. The second is to satisfy Fair Work Australia with regards pay rates and employment conditions.

The ATO have put in place some procedures to follow if you employ contractors. Essentially Fairwork is only concerned with employees getting their entitlements, and the ATO getting their tax. If you employ a contractor who works in an employee relationship with you, you are obliged to pay their super at the legislated rate and, in certain industries such as transport, cleaning, building and construction, IT services and security, you are also required to provide a statement called a Taxable Payments Annual Report (TPAR ) to verify the payments made to the contractor.

If you want to avoid a payroll audit, or pass it with flying colours, here’s what you need to do?

Assess your employees and contractors.
a) Ensure your employees are paid according to the Award, super is paid correctly and on time, and that all entitlements are accruing at the correct rate.

b)Assess your contractors to see if they should be paid superannuation to ensure you comply with Employee V Contractor conditions.

2. Self audit your employee onboarding process to ensure all Fairwork requirements are complete prior to the employee starting work.

3. Self audit your suppliers and ensure any contractor supplying labour only services carry insurance, have a valid ABN and understand that you will provide a TPAR at end of the financial year.

If you find the above overwhelming or decide to obtain professional advice, give us a call. We provide a comprehensive payroll and HR service, from onboarding and contracts, to payroll processing and terminations. We have a team of HR consultants to refer any tricky questions, and their expertise is available to you for more complex situations.

For more information about TPAR, you can visit the ATO site here https://www.ato.gov.au/Business/Reports-and-returns/Taxable-payments-annual-report/

For more information about determining if you are employing an employee or contractor, you can use the ATO Decision Tool here https://www.ato.gov.au/calculators-and-tools/employee-or-contractor/