7 Myths About Employee/Contractor Arrangements

If you use contractors in your business, make sure you don’t get caught by some common employee/contractor myths.

It is important to get the distinction right between employees and contractors as this determines your income tax and superannuation obligations as well as payroll tax and workcover obligations. 

Myth 1: If the person has an ABN they are a contractor

Fact: Having or quoting an ABN makes no difference to whether a person is an employee or contractor for a job.

To correctly work out whether a worker is an employee or contractor, you need to look at the whole working arrangement and the specific terms and conditions under which the work is done.

Myth 2: If others in my industry are doing the same then the person is a contractor

Fact: Industry practices make no difference and will not make someone a contractor. Don’t assume other businesses have worked it out correctly. It’s the whole working arrangement that determines if someone is an employee or a contractor.

Myth 3: If the person only works for short periods they are a contractor

Fact: The length of a job (short or long duration) or regularity of work makes no difference to whether a person is an employee or contractor.

Both employees and contractors can be used for:

  • casual, temporary, on-call and infrequent work
  • busy periods
  • short jobs, specific tasks and projects

Myth 4: The person is a contractor because the contract or agreement says they are

Fact: A contact or agreement makes no difference and will not make the person a contractor for the job. If the working arrangement is employment, a contract or agreement stating the person is a contractor won’t override this employment arrangement or change the obligations you need to meet.

Myth 5: If the person submits invoices they are a contractor

Fact: Submitting an invoice for work done or being 'paid on invoice' makes no difference and will not make the person a contractor for a job. The entire arrangement determines whether they are an employee or a contractor, not whether they submit an invoice.

Myth 6: The person has a business name so they are a contractor

Fact: Having a registered business name makes no difference to whether a person is an employee or contractor for a particular job.

Myth 7: The person has specialist skills or qualifications so they should be engaged as a contractor

Fact: If a business takes on a person for their specialist skills or qualifications it doesn't automatically mean they are a contractor.

A person with specialist skills or qualifications can be either an employee or contractor depending on the terms and conditions under which the work is done.

© Copyright 2016 Australianbiz Pty Ltd