Myth: If a worker has an ABN they're an independent contractor
Fact: Having an ABN makes no difference to whether a worker is an employee or independent contractor for a job.
Businesses sometimes request or pressure a worker who is an employee to obtain an ABN in the belief this will make the worker an independent contractor. Often these businesses attempt to disguise the employment arrangement and make it look like contracting to avoid their PAYG withholding and super obligations.
If the working arrangement is employment, an ABN will not make the worker an independent contractor.
Myth: Everyone in my industry takes on workers as independent contractors, so my business should too
Fact: Just because other businesses treat workers as independent contractors doesn't mean they have got it right.
Ignore common industry practice when determining whether your worker is an employee or independent contractor.
Myth: Employees can't be used for short jobs or to get extra work done during busy periods
Fact: The length of a job or regularity of work makes no difference to whether a worker is an employee or independent contractor.
Both employees and independent contractors can be used for:
- casual, temporary, on-call and infrequent work
- busy periods
- short jobs, specific tasks and projects.
Myth: A worker can't work more than 80% of their time for one business if they want to be considered an independent contractor
Fact: The 80% rule, or 80/20 rule as it is sometimes called, relates to personal services income (PSI) and can change how an independent contractor:
- reports their income in their own tax return
- claims some business-like deductions.
It's not a factor a business considers when they work out whether a worker is an employee or independent contractor.
Myth: My business has always used independent contractors, so we don't need to check whether new workers are employees or independent contractors
Fact: Before hiring a new worker, you should always check whether the worker is an employee or independent contractor by examining the working arrangement.
Unless a working arrangement (including the specific terms and conditions under which the work is done) is identical to a previous arrangement you've already checked, the outcome could be different.
Hiring workers without checking the working arrangement could mean the business is incorrectly treating all future workers as independent contractors when they are employees.
Myth: If a worker has a registered business name, they're an independent contractor
Fact: Having a registered business name makes no difference to whether a worker is an employee or independent contractor.
Myth: If a worker is an independent contractor for one job, they will be an independent contractor for all jobs
Fact: The working arrangement and specific terms and conditions will determine whether a worker is an employee or independent contractor for each job. A worker could be an employee for one job and an independent contractor for the next job.
Myth: My business should only take on independent contractors so we don't have to worry about super
Fact: Businesses may be required to pay super for their independent contractors. If you pay an individual contractor under a contract that is wholly or principally for the person's labour, you have to pay super contributions for them.
Myth: Workers used for their specialist skills or qualifications should be engaged as independent contractors
Fact: If a business takes on a worker for their specialist skills or qualifications it doesn't automatically mean they're an independent contractor.
A worker with specialist skills or qualifications can be either an employee or independent contractor depending on the terms and conditions under which the work is done.
Myth: My worker wants to be an independent contractor, so my business should treat them as one
Fact: Just because a worker has a preference to work as an independent contractor doesn't mean your business can engage them as an independent contractor.
Whether a worker is an employee or independent contractor is not a matter of choice, but depends entirely on the working arrangement and the specific terms and conditions.
If you give into pressure and agree to treat an employee as an independent contractor, you can face penalties and charges for not meeting your tax and super obligations.
Myth: If a worker submits an invoice for their work, they're an independent contractor
Fact: Submitting an invoice for work done or being 'paid on invoice' doesn't make a worker an independent contractor.
To know whether a worker is an employee or independent contractor, you need to look at the whole working arrangement and examine the specific terms and conditions.
Myth: If a worker's contract has a section that says they are an independent contractor, then legally they're an independent contractor
Fact: If a worker is legally an employee, a contract saying the worker is an independent contractor won't make the worker an independent contractor at law.
Businesses and workers will sometimes include specific words in a written contract to say that the working arrangement is contracting in the mistaken belief that this will make the worker an independent contractor at law.
If a worker is legally an employee, a contract specifying the worker is an independent contractor makes no difference and won't:
- override the employment relationship or change the worker into an independent contractor
- change the PAYG withholding and super obligations a business is required to meet.
Authorised by the Australian Government, Canberra.