Do you know if your new worker is an employee or a contractor? When employing a worker, it’s important to correctly classify them because it affects tax, super or other obligations (such as workers compensation insurance or other workers’ entitlements).

Correctly working out whether a worker is an employee or contractor helps to build a more level playing field for all Australian businesses, including your own.

The following workers are always treated as employees:

• apprentices
• trainees
• labourers
• Trades assistants

Companies, Trusts And Partnerships

An employee must be a person. If you’ve hired a company, trust or partnership to do the work, this is a contracting relationship for tax and super purposes. The people who do the work may be directors, partners or employees of the contractor but they’re not your employees.

Labour Hire Or On-Hire Arrangements

If you hired your worker through a labour hire or on-hire firm and paid that firm for the work undertaken in your business, your business has a contract with the labour hire firm. They are responsible for pay as you go (PAYG) withholding, super and fringe benefits tax obligations. Labour hire firms may be called different names, including recruitment services or group training organisations. They will refer to your business as the ‘host employer’.

Hiring Individuals

If you’ve hired an individual, the details within the working agreement or contract determine if they are a contractor or employee for tax and super purposes. The agreement or contract can be written or verbal.

Superannuation

If you are engaging a worker who you believe is a contractor, you can choose to pay them super to ensure you are not liable for the superannuation guarantee charge (SGC). You will need to pay any super contributions directly to their chosen superannuation fund and should include this in your contract with the worker.