• Making employment look like contracting

    Sometimes businesses will try to make a working arrangement which is employment look like contracting, so the worker can be incorrectly treated as a contractor.

    Often these businesses are attempting to avoid their PAYG withholding and super obligations for the worker in order to reduce their labour costs.

    If a working arrangement is employment, it cannot be overridden by trying to make the arrangement look like contracting without changing the underlying legal position.

    Businesses that incorrectly treat employees as contractors and do not meet their required obligations are breaking the law and can face penalties and charges.

    Australian business number (ABN)

    Businesses sometimes request or pressure their workers who are employees to obtain an ABN in the belief this will make the worker a contractor.

    Just because a worker has an ABN does not mean they will be a contractor for every job.

    If the working arrangement is employment, whether the worker has or quotes an ABN makes no difference and will not change the worker into a contractor or alter the obligations you need to meet.

    Not everyone is entitled to an ABN

    When a worker applies for an ABN they will be asked a series of questions to determine if they are entitled to an ABN.

    Only individuals who carry on an enterprise can be entitled to an ABN.

    If a worker provides false or misleading information when applying for an ABN they can be penalised.

    Example – worker not entitled to ABN

    A construction business has won a contract to build a new cafe and needs a labourer to help with the job.

    They select Jamil and tell him if he wants this work, he will need to become a contractor. They also tell him to obtain an ABN.

    As work is in short supply, Jamil agrees to be contractor and applies for an ABN. He provides false information so he qualifies for an ABN.

    Later the ATO reviews the working arrangement and identifies Jamil is an employee.

    As a result, the construction business:

    • is required to treat Jamil as an employee (the ABN holds no weight in the decision and does not make him a contractor)
    • may incur penalties and other charges for not meeting the required obligations for their employee.

    Jamil's ABN will be cancelled and he may be subject to penalties for providing false information.

    End of example

    See also:

    Written or oral contracts

    Businesses and workers will sometimes enter into a written or oral contract specifying a working arrangement is contracting in an attempt to make a worker (who is an employee) look like a contractor.

    If a worker is an employee, a written or oral contract specifying the working arrangement is contracting will not override the employment relationship or alter the obligations a business is required to meet.

    Example – invalid working arrangement

    A carpet laying business wants to reduce labour costs and decides to re-engage all their carpet layers (who currently work in the business as employees) as contractors.

    The carpet laying business gets the carpet layers to sign a contract indicating their working arrangement is contracting.

    Later the ATO reviews the working arrangements of the business and identifies that the carpet layers are employees. As a result, the carpet laying business:

    • is required to treat all the carpet layers as employees (the contract specifying the working arrangement is contracting is invalid and holds no weight in the decision)
    • may incur penalties and other charges for not meeting the required obligations for their employees.
    End of example
      Last modified: 13 Apr 2016QC 18176