Are Your Staff Classified As Employees or Contractors?
If you're relatively new to the business world and are thinking about opening or expanding an organisation, you may be looking for help to move forward. In this case, you may be searching for talent as you realise that more pairs of hands make light work and will be figuring out how they should be paid. It may be tempting to treat these new people as independent contractors rather than employees as there would appear to be less paperwork and fewer obligations. However, you need to be particularly careful, especially when it comes to the tax authorities. What do you need to bear in mind as you make your decisions?
Employee Obligations
If you take on staff as full-time employees, you will need to account for various obligations. For a start, you have to withhold taxes under the PAYE scheme and pay this to the government on the employee's behalf. You may be required to contribute to the superannuation scheme, which provides for the employee later in their life. Depending on how you work with each employee, you may also be liable for fringe benefits taxes. This comes into the equation when you give certain perks to the employee that are not paid in cash. You may even be responsible for this tax if you throw an annual holiday party for your employees.
Furthermore, you are responsible for giving employees certain benefits such as annual leave or sick leave, and if you want to lay anybody off, you may also have to consider redundancy settlements.
Contractor or Employee?
The ATO will look very closely at each contractor and want to know whether they are, in fact, an employee instead. They will use various tools to help them figure out the relationship between the person and the employer. The first tool covers the degree of control. In other words, do you, as the employer, control how the person performs the work and insist on certain procedures? Or is the person entirely responsible for how the work is performed, regardless of what the employer thinks?
Other Tests
Another test relates to payment methods. If you set hourly rates, the ATO may consider this person to be an employee, but if you only pay out after the completion of a job, then they may classify this as a contractor relationship.
The Risks of Making a Mistake
Various other tests are involved, and you need to be particularly careful before you go ahead. After all, if the ATO conducts an audit and finds out that this person should have been an employee, you will probably be on the hook for a raft of back taxes and could face fines as well.
Getting Expert Advice
To ensure that you do not make any missteps, always consult with an experienced accountant at the outset. Contact local accounting services to learn more.