Contractors and Employees: A health check
As we approach year end, we thought it was worth reminding our clients with regards to the distinction between contractor and employee and the tax implications that flow from these categories. These issues arise regularly in the building and construction industry, but often arise in other industries as well. The below analysis relates only to engagement of individuals, and not to companies, trusts or other entities.
We outline the primary considerations in deciding if a worker is a contractor or an employee on the last page. The primary guidelines are Independence/ integration, control, right to delegate, results, provision of tools, risk.
A business will be required to register and withhold PAYGW if:
- a business employs an employee
- remunerates a company director or various
- officeholders; and
- other specific categories
A business is liable to payroll tax on behalf of:
- where contractor is deemed an employee
- Exclusions include:
- contractor provides services to business for less than 90 days per year,
- delegation of work, where labour is ancillary to materials or equipment,
- services not ordinarily required by business or generally provided to a range of clients,
- services generally required for less than 180 days per year; or
- where contractor ordinarily provides services to the public at large.
A business is required to contribute super guarantee for:
- an employee; or
- a person who works under contract wholly or
- principally for labour;
The rate of super guarantee is increasing from 9% until 30 June 2013 to 9.25% with effect from 1 July 2013.
Employers are generally required to make super guarantee contributions quarterly.
A business is required to obtain a Workcover insurance policy in respect of:
- an employee;
- a contractor where the provision of services is not ancillary to the provision of materials and equipment, at least 80% of services are provided by the same person and at least 80% of the contractor’s gross contractual income is derived as a direct result of services performed by the same person.
Taxable Payments Reporting – Building and Construction Industry
From 1 July 2012 businesses in the building and construction industry are required to report payments they make for building and construction services each year.
You will need to make such a report if:
- you are a business which is primarily in the building and construction industry;
- you make payments to contractors for building and construction services;
- you have an Australian business number (ABN).
You are considered to be a business which is primarily in the building and construction industry if:
- in the current year 50% or more of your business income is derived from/ or relates to providing building and construction services; or
- in the previous financial year 50% or more of your business income was derived from building and construction services.
The taxable payments annual report for the building and construction industry is required to be submitted by 21 July 2013 for annual reporters, or by 28 July 2013, if the business reports quarterly.
An extended lodgement date of 25th August 2013 is available to tax agents for the 2013 year only.
This is a general overview of the issues and should not be relied upon as advice. Any business with queries in relation to the implications of employees/contractors for their business or who would like a review of their treatment of contractors and employees should contact your usual PKF Lawler adviser.