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Contractors vs Employees - What's the difference?

Contractors and employees – what’s the difference?

When hiring a worker it is important to clarify whether they will be classed as an employee or contractor, as it will significantly affect your tax, super and other related obligations.

Just because someone provides you with an ABN and an invoice for work undertaken, doesn’t necessarily mean that they are a contractor. Likewise, you cannot simply agree to be classed as a contractor or an employee.

While there is no one specific rule that makes you one or the other, the ATO will look at the substance of the arrangement to make its determination. Various tests will be applied to your individual circumstances which when combined, will determine which category you fall into.

Some areas that will be considered are

-          The amount of control over when and where work is performed and by whom.

-          The ability to delegate tasks.

-          Who is responsible for rectifying faults or poor work?

-          How are your ‘contractors’ paid (per hour vs per service or job)?

-          Are your ‘contractors’ working, or able to work, for others? (ie are they genuinely open for business for the greater contracting services market?)

There are considerable consequences for either outcome, therefore the ATO have provided a great tool that will help you decide what applies to your circumstances. Check it out at the following address - https://www.ato.gov.au/ec

 

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