Independent Contractors might be employees for Tax & Super purpose

A Contractor might be a Common Law Employee

Above is the extract from the contract provided in the case Toowong Pastures Pty Ltd as Trustee for the DB Family Trust trading as KBE Contracting Australia Pty Ltd and Commissioner of Taxation [2019] AATA 4897 (20 November 2019).

The contract indicates that KBE Contracting Australia engaged Mr. Wheeler as an independent contractor who pays all tax and super on his own.

However, on the 20th of November 2019, the Tribunal: Senior Member Dr. M Evans held that Mr. Wheeler was a Common Law Employee of KBE Contracting Australia and as a result, KBE Contracting Australia was liable to pay superannuation guarantee charge for failing to make superannuation guarantee contributions in respect of services its worker performed as a common-law employee under s 12(1) of the Superannuation Guarantee (Administration) Act 1992.

The relationship between the applicant and the worker was assessed against the usual indicia and the worker was regarded as an employee because he was not operating his own business but worked in and for the applicant’s business.

The superannuation guarantee charges totaled $14,924.65 and sadly are not tax-deductible.

Accountants & Tax Agents should take proactive steps

From the case above, it’s clearly important that accountants and tax agents need to take proactive steps to identify the situation and provide timely advice as assessing whether a worker is a Common Law Employee is sometimes too complicated for your clients.

There are many deciding factors to determine if a worker is an employee or contractor for tax and super purposes. If your clients engage contractors, you need to review or advise them to review all the factors of the working arrangement to determine whether they are an employee or contractor.

The only exception is when they are either:

taking on an apprentice, trainee, laborer, or trades assistant - these workers are always employees, never contractors.

hiring a company, trust, or partnership to do the work - this is always a contracting relationship for tax and super purposes.

For all other workers, you or your clients will need to ask the right questions to determine if they’re an employee or contractor. Consider the following:

Ability to subcontract/delegate: can they pay someone else to do the work?

Basis of payment: are they paid based on an agreed quote they provided?

Equipment, tools and other assets: do they provide their own tools and equipment needed to get the job done?

Commercial risks: are they legally responsible for their work and liable for fixing mistakes or defects?

Control over the work: do they decide how the work gets done subject to specific terms in the contract or agreement?

Independence: do they operate their own business independently of your organization?

If the answer is no to some or all of these questions, it is likely that they are an employee. It’s important to assess this correctly because getting it wrong will put your client at risk of penalties and charges like the KBE Contracting Australia.

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