Across a number of industries, the ATO continues to see contracting arrangements being misused by employers with the intention of avoiding employment overheads. The ATO will investigate employers that intentionally try to avoid their tax and superannuation obligations by improperly treating workers as contractors rather than employees. They will assist employers to understand and meet their obligations. Where non-compliance is detected they will apply penalties.
A principal should assess all contractors on a case by case basis to determine if the contractor falls within the definition of employee. Issues arise where the contractor is providing labour services, is not responsible for achieving a result, do not provide tools and works for an hourly rate. The ATO will look at an arrangement like this and deem that contractor to be an employee. The onus will be on the principal and the consequences could be catastrophic.
Simply providing an ABN as a sole trader or company does not mean you are a contractor. The ATO will supply that the fundamental principles mentioned above are not satisfied. It will be the principal’s responsibility to monitor contractors they engage to ensure sure the risk does not pass to them. Monitoring this can be a nightmare if you employ a lot of contractors.
In recent years we have seen the ATO target these arrangements. Not paying superannuation and other obligations is what the ATO is trying to stop. It doesn’t set a consistent example across SME’s when some people are reporting correctly and others are not.
I suppose the ATO are trying to protect superannuation obligations to ensure upon retirement the contractors will have superannuation waiting to fund retirement.