Businesses utilising labour typically have obligations for taxes including PAYG Withholding, Superannuation Guarantee, Payroll Tax, WorkCover and Fringe Benefits Tax. This can be the case whether the labour is provided by employees or contractors.
Contrary to popular belief, engaging contractors does not simplify your tax obligations. Indeed, it can add layers of complexity and uncertainty. What is troubling is that this is not lost on Revenue Collection Authorities including the Australian Taxation Office, the State Revenue Offices and Workers’ Compensation administrators. Having observed significant non-compliance, the Revenue Authorities employ sophisticated analysis and cross-checking to target businesses that engage contractors. Whilst this bodes well for their revenue collection targets, it can be disastrous for the businesses concerned.
Exacerbating these risks are the common myths associated with engaging contractors. These include:
- Quoting an Australian Business Number (ABN) proves that a worker is a contractor and not an employee.
- Engaging a contractor instead of an employee means you avoid all the tax obligations you would otherwise have.
- You only pay Superannuation Guarantee on an employee and never on a contractor.
- Payroll Tax and WorkCover do not apply to a contractor operating through a company.
- If a contractor has a current WorkCover policy, you are not liable.
The unfortunate fact is that none of these statements is correct. Obligations can arise in many unexpected ways including those listed above.
What is imperative when engaging labour is that you get expert advice to ensure you are meeting your tax obligations. This will ensure that if the Revenue Authorities target your business, you can rest easy and be confident that you are complying.
Pitcher Partners has a specialist employment taxes team which can assist with a review of all tax obligations arising from the engagement of employees and contractors. They can undertake a review of all your obligations through an employment taxes health check or consult with you on particular issues.
If you would like further information or assistance, please contact your Pitcher Partners tax expert.