Employee v Contractor.

The ATO is allocating compliance resources to worker classification arrangements and have released draft Guideline PCG 2022/D5 to assist when classifying workers as employees or independent contractors. It also outlines the risk framework to assist in a self-assessing the likelihood of ATO Compliance action.

It is not always a straight forward answer if a worker is an employee or contractor for the purposes of super, pay as you go obligations, payroll tax and employment entitlements among other things when the worker is contracted as a sole trader.

Some key factors in assessing if a contractor is an employee include, but are not limited to:

• Right to exercise control

• Obligation to wear a uniform

• Hours of work

• Right to delegate work

• Obligation to produce a result

Further evidencing the changing scene and complexities, the ATO has withdrawn Taxation Ruling 2005/16 effective 15/12/2022 and issued new draft taxation ruling TR 2022/D3 updating the outline for who is an employee for purposes of Pay As You Go obligations from the payment of salary, wages, commission, bonuses or allowances.

The Superannuation Guarantee Ruling (SGR 2005/1), which contains an extended definition of employee for superannuation guarantee purposes is also currently being reviewed after the High Courts decision in the Personnel and Jamsek cases.

This age-old issue creates so many grey areas which the ATO are ever extending their focus on.  We highly recommend that where your business needs to engage contractors, insist that they operate through a company or trust to avoid any confusion in determining their employee v contractor status.  The consequences of getting it wrong is a very risky exposure for any business.