When is a con­trac­tor not a con­trac­tor? Is an ABN enough?

In brief

Employ­ment lawyers are con­stant­ly being told by their clients: It’s okay, he/​she has an ABN”.

Employ­ers often pre­sume, as the work­er has the mag­i­cal” ATO-relat­ed num­ber, the ABN, that some­how all employ­ment oblig­a­tions are absolved. Recent cas­es in rela­tion to sham con­tract­ing and, gen­er­al­ly, claims by employ­ees have demon­strat­ed over and over that this is not the case. It is actu­al­ly very dif­fi­cult to estab­lish a legit­i­mate con­tract­ing rela­tion­ship between a busi­ness and anoth­er individual.

There is a sub­tle, but very mean­ing­ful, dif­fer­ence between whether a work­er IS a con­trac­tor to your busi­ness or whether the work­er IS LIKE­LY TO BE a contractor.

If you want to be cer­tain that your employ­ee is a con­trac­tor then we rec­om­mend that you close­ly con­sid­er the fol­low­ing indicators:

The work­er is a con­trac­tor to your busi­ness if:

  • the work­er employs oth­er staff; or

  • your work­er is essen­tial­ly pro­vid­ing equip­ment or facil­i­ties to you (of a sub­stan­tial nature) and the labour is only inci­den­tal to that

The work­er is like­ly to be a con­trac­tor if the worker:

  • has a reg­is­tered busi­ness name; and

  • adver­tis­es on social media or else­where under their own indi­vid­ual sig­nage and brand­ing; and

  • has an exten­sive client base, then they are like­ly to be a con­trac­tor (although it can be very dif­fi­cult to track how many oth­er clients that work­er is actu­al­ly deal­ing with); and

  • vol­un­teers a quote; and

  • charges the unit (not hourly) rate; and

  • puts a mark-up on mate­ri­als (which are more than nom­i­nal); and

  • con­tributes sig­nif­i­cant equip­ment (i.e. tai­lor-fit­ted vehicle).

In the absence of com­pre­hen­sive indi­ca­tors like these, your expo­sure is significant.

Sev­er­al years ago a nation­al insur­ance com­pa­ny had to back pay $500,000 in annu­al leave to agents who had been work­ing for them for near­ly twen­ty years. A rel­a­tive­ly small bus com­pa­ny was fined more than $240,000 (and its direc­tor $48,000) in rela­tion to what was regard­ed as sham contracting.

Even if you are pay­ing your con­trac­tors gen­er­ous­ly above the award, the court could still hold that annu­al leave and long ser­vice leave has been accru­ing and that you would have to pay.

Impor­tant­ly, there are oth­er statu­to­ry lia­bil­i­ties that may arise.None of the above advice relates to the dif­fer­ent tests in rela­tion to super­an­nu­a­tion, pay­roll tax or work­ers compensation.Each piece of leg­is­la­tion has a dif­fer­ent test of what it clas­si­fies as a work­er’.

It is not appro­pri­ate to seek this advice from an accoun­tant. They are not equipped to pro­vide the legal advice need­ed to dis­sect these dif­fi­cult issues. 

Get­ting advice ear­ly is a great investment.