Overview
Contractors and employees have different tax and super obligations.
Similarly, if you have people working for you, your obligations differ depending on whether your workers are contractors or employees.
So it's important you know whether you are, or your worker is, an employee or a contractor.
Employee or contractor
A key factor in deciding if a worker is an employee is the degree of control that can be exercised over the worker. If the payer has the right to direct how, when, where and who is to perform the work, then the worker is likely to be an employee.
Another key factor to consider is whether the worker is being paid for the time they work, or being paid for a result:
- Workers being paid by the hour are more likely to be employees.
- Workers being paid for a result are more likely to be contractors.
There are a number of factors to consider in determining whether a worker is an employee or a contractor, with no single factor necessarily conclusive. You must consider all the facts in each case.
Entitlement to an ABN
If you are, or your worker is, a contractor, you also need to know about entitlement to register for an Australian business number (ABN) because there are different goods and services (GST) and pay as you go (PAYG) withholding obligations depending on whether a contractor has an ABN or not.
Engaging contractors
If you engage contractors, you are not required to withhold amounts from payments except where:
- the contractor has not quoted their ABN to you
- a contract worker you engage provides their work or services for your client under a labour hire arrangement between you and the client, or
- you have entered into a voluntary agreement with the contractor to withhold from payments. Voluntary agreements can help your contractors to meet their PAYG tax obligations.
For individual contractors, you must also make super guarantee contributions for them if more than 50% of the value of their contract is for labour.
Operating as a contractor
If you are a contractor, you will generally provide for your tax obligations through the pay as you go (PAYG) instalments system. If you:
- have an Australian business number (ABN), your payer may agree to withhold tax from your payments under a PAYG withholding voluntary agreement
- don't quote an ABN, the payer will be obliged to withhold tax from your payment.
You also need to be aware of:
- how you are taxed if some or all of your income is personal services income
- any super guarantee entitlements you may have.
Last Modified: Tuesday, 26 July 2011