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