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
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
The worker is likely to be a contractor if the
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);
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.
An employee that refused a reasonable offer of settlement was ordered by the FWC to pay his ex-employer's legal costs.
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