Understanding Employee vs Independent Contractor for Tax and Employment Purposes
It's crucial to correctly classify workers as either employees or genuine independent contractors for various tax, superannuation, and employment-related reasons:
1. PAYG Withholding: Employers withhold PAYG from employees' salary and wages but generally not from payments to independent contractors. With 'single touch payroll,' employers must report pay events to the ATO when paying employees.
2. Superannuation Guarantee (SG): Employers must provide SG support to eligible employees, usually at 9.5% of their ordinary time earnings.
3. Fringe Benefits Tax (FBT): Employers report and pay FBT for providing fringe benefits to employees.
Recent cases like Toowong Pastures Pty Ltd and Probin cases highlight disputes over SG obligations for workers considered by the ATO to be employees versus independent contractors.
When is a Worker Considered an 'Employee' for SG Purposes?
According to the Superannuation Guarantee (Administration) Act 1992, workers are considered employees based on common law principles. If a person works under a contract primarily for their labor, they're considered an employee.
Got questions? Reach out to Tax Ideas Accountants & Advisers at +61 2 83181545 or book an appointment on our live calendar.
