Figuring Out Who’s Who – Employees vs Contractors

Hello Chasers,

Ever hired someone to help out in your tradie business, but worried if they’re an employee or an independent contractor? The tax implications are different, so getting it right is important. 

The ATO just released some new info – a Tax Ruling TR 2023/4 – Income tax: pay as you go withholding – who is an employee? and a Practical Compliance Guide 2023/2 to help clear things up.

Here are some of the key takeaways:

  • It’s a contract thing: Forget fancy titles or uniforms. What matters most are the legal rights and obligations in the contract.
  • Focus on the big picture: Don’t just pick out individual factors e.g. they have an ABN. Look at the entire relationship between you and the worker.
  • Labels don’t matter: Calling someone an “employee” in the contract doesn’t make them one.
  • High Court said so: Recent court rulings set the tone for this new guidance.

Still confused? 

Here’s the gist:

Think of an employee as someone who works within your business, following your rules and instructions. They’re like part of the team.

An independent contractor, on the other hand, runs their own business and provides services to your business. They’re more like partners.

Want to know more? 

Check these out:

The Ruling: This legally binding document lays out the core principles.

The PCG: This practical guide explains how the ATO will assess risk in different situations.

Remember: This is just a simplified overview. For specific advice, contact our Team on 03-55612643. 

Don’t get caught in the wrong category – it could cost you!

Have a great day!

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