August 6, 2018
There are some key differences between employees and independent subcontractors. It is important for both employers and employees to be able to identify these, particularly because there are tax and superannuation implications for the different working relationships. Penalties can apply when workers are not employed correctly.
The following checklist will help you decide what situation you are in. If most of the answers are “yes”, it is likely that the relationship is one of employee/employer. If “no”, it is more likely to be one of subcontractor/host entity.
Please note that this list is only indicative not exhaustive, and further legal advice will need to be sought in this regard.
|Length of Contract||Has the contractor been engaged on an ongoing basis? For instance, has the person been engaged for six months or more and is likely to be extended rather than to undertake a specific task, period or project?|
|Direct reports||Will the contractor be supervising direct reports of the host entity in a line management capacity?|
|Will the contractor represent themselves as a member of the host entity – for instance by using the host entity’s business cards or uniform?|
|Employment at the host company||Is the contractor a recent employee of the host entity? If so, is the work undertaken as a contractor the same as the work they undertook as an employee?|
|Control||Will the contractor be under the host entity’s direct control or will the contractor have the right to control how the work is to be done?|
|Ongoing expectation of work||Does the contractor have any ongoing expectation of work with the host entity?|
|Leave||Does the host entity pay the contractor annual or other types of leave?|
|Taxation or other deductions||Does the host entity deduct income or other deductions from the contractor’s remuneration the same as it would do for an employee?|
|Business structure||Is the contractor engaged as themselves rather than as a sole trader or company?|
|Mode of remuneration||Will the contractor be paid a regular amount each fortnight/month rather than being paid on a more random method eg by submitting tax invoices?|
|Hours of work||Is the contractor working set and inflexible hours or within other limitations?|
|Team work||Is the contractor involved in teams which include the host entity’s employees and doing substantially the same work?|
|Exclusive service||Is the contractor restricted from working on other non-host entity assignments?|
|Ability to delegate work||Does the host entity control the contractor’s ability to delegate work to others or employ others to undertake the work?|
|Degree of risk||
|Insurance||Is the host entity taking insurance out for the contractor such as workers compensation and professional indemnity?|
|Superannuation||Is the host entity paying superannuation contributions on behalf of the contractor?|
|Tools, equipment and materials||Does the host entity provide the tools, equipment and materials required by the contractor to undertake the services?|
|Expenses||Is the host entity responsible for reimbursing any expenses incurred by the contractor?|
A taxable payments annual report (TPAR) needs to be lodged with the ATO for businesses that use subcontractors in the building and construction industry and government agencies. More information can be found on the ATO website.