The Employment Mistake That Could Cost You Penalties
We recently had a client trying to do something that sounds simple… but really isn’t.
They wanted to be treated as both an employee and a contractor at the same time.
The problem? You can’t. And getting that line wrong can lead to some serious consequences – from tax issues to unexpected super, payroll tax, and even penalties.
It’s one of the most common areas where people slip up – especially when structuring work arrangements or bringing people into a business.
We break it down in this short video
If you run a business, hire contractors, or are setting yourself up — this is one to get right from the start.
Working with you,
Ross Millen & The Millens Team
VIDEO TRANSCRIPT
Ross Millen:
Ross Millen from Millens here again with something I hope will be useful for you or someone you know. Now, we recently had a client who was probably an employee of a particular business, but he had arranged some profit share arrangements and he wanted this to come through a company and he wanted to be treated like an independent contractor.
So it's very hard to be one thing and the other at the same time. So we had the slightly impossible task of drafting documents that would enable him to achieve both outcomes. Now, I said to him, "The problem here is there's a real tension. On the one hand, you want to be an employee and on the other hand you want to be an independent contractor and you can't be both."
And it struck me that a lot of people don't understand that what's the consequence of that? What's the difference? Now, obviously, there's things like taxation, there's employee rights, there's a question about ABN quoting. There's a question about who controls the work. So you've got to get the answer right at workers' compensation. So you've got to get the answer right. Whether people providing services or service to you are employees or independent contractors.
Now, there's a lot of various indications that determine that. The question is, for instance, does someone only work or turn up exclusively for you 9:00 to 5:00? They're more likely to be an employee. Do you provide the equipment that they use? Do you tell them what jobs to do and when to do it? Do they wear a uniform? Do they drive a truck or a car that's labeled with your business? These are some of the things that we can look at to help you determine whether people are actually employees or independent contractors. And it doesn't really matter what the documents say. It depends what actually happens in practice.
Now, there are big penalties if you get it wrong, because if you're not deducting tax and people are ultimately found to be employees, then you're in trouble with the tax office. Also, in some cases, contractors, you have to pay them superannuation as well, and you have to include them in payroll tax and sometimes in workers' comp as well.
So if you've got any queries or questions about whether people are employees or independent contractors, or if you want to set up your own self as an independent contractor and you want to get it right, remember to contact me, Ross Millen, or anyone else at the Millens team. We're here to help you.