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  • How to work it out: employee or contractor

    On 9 February 2022, the High Court handed down decisions in CFMMEU v Personnel Contracting [2022] HCA 1 and ZG Operations v Jamsek [2022] HCA 2, which impact ATO advice and guidance in relation to classifying workers.

    We are currently considering these decisions and the impact they will have in relation to the worker classification risk, and we have published a decision impact statement.

    We are reviewing our public advice and guidance products and we will make any necessary updates to reflect the principles set out by the High Court.

    The employee or contractor decision tool is currently unavailable pending this review. Information to help you determine whether your worker is an employee or contractor is available at employee or contractor

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    Classifying your worker

    You are responsible for classifying your worker for tax and super purposes and you need to get it right. If you make an incorrect decision, you may face penalties.

    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 of employment.

    Some workers are always employees

    The following workers are always treated as employees:

    • apprentices
    • trainees
    • labourers
    • trades assistants.

    Apprentices and trainees do both work and recognised training to get a qualification, certificate or diploma. They can be full-time, part-time or school-based and usually have a formal training agreement with the business they work for. This is registered through a state or territory training authority or completed under a relevant law.

    In most cases they are paid under an award and receive specific pay and conditions. You must meet the same tax and super obligations as you do for any other employees.

    Companies, trusts and partnerships are always contractors

    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 pay that firm for the work undertaken in your business, your business has a contract with the labour hire firm and 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.

    Find out about building an employee contractExternal Link.

    Last modified: 08 Sep 2022QC 33190