Central Coast Mortgage Brokers

Contractor Payments Reporting Under Scrutiny

The introduction of the new contractor payments reporting regime, which will apply to the building and construction industry from 1 July 2012, will also put contract arrangements under further scrutiny.

As outlined below, payers have differing obligations in respect of employees and contractors and it is therefore important to determine whether a worker is an employee or contractor.

Employee Or Contractor?

There is no single definition of ’employee’.  The definition of an employee is different for the purposes of pay-as-you-go (PAYG) withholding, superannuation, payroll tax, WorkCover and fringe benefits tax (FBT) obligations.

A number of factors, such as the degree of control that the payer has over the worker, whether workers hold necessary licences and insurances, and the number of organisations they provide services to, are relevant in determining the relationship for PAYG contractor payments reportingpurposes.

Payer’s Obligations

PAYG Withholding

Where workers are deemed to be employees, be correct PAYG withholding tax must be withheld from their earnings.

It a worker as a contractor, a payer is only required to withhold amounts from payments where the contractor:

  • Has entered into a voluntary agreement with the payer.
  • Provides work/services under a labour hire arrangement.
  • Has not quoted an Australian business number

Superannuation

Superannuation employee or contractorWhere a worker is deemed to be an employee, the employer must make superannuation guarantee contributions on the worker’s earnings (currently 9%).  Contractors are responsible for their own superannuation obligations.

Contractors cannot be deemed to be employees where they operate through an entity.

Payroll Tax

Each state and territory of Australia has its own legislation governing payroll tax.  Payments to workers are taxable if they are deemed to be employees.

WorkCover

Each state and territory of Australia has its own legislation governing WorkCover.  Payers are liable for WorkCover for contractors if they are deemed to be employees.

FBT

Where a worker is deemed to be an employee, the employer is required to remit FBT (currently 46.5%) on the grossed up the taxable value of benefits provided, subject to any concessions and exemptions.

In summary, the emphasis is on the payer to correctly establish if a worker is an employee or contractor.  If a payer incorrectly classifies a relationship they will be liable for any associated penalties.

Therefore, when businesses engage workers, it is important to establish the status under which services are provided.

Source: HLB Mann Judd Newsletter Winter 2012


Contact Us

AIMS Accounting Service
22 Swindon Close
Lake Haven NSW 2263
Phone: 02 4392 8720

Small Business News

In Sydney, businesses that utilise a co-working space instead of entering a traditional office lease [...]

Ten Australian companies have been named amongst the top 100 fintechs globally, with three – Prospa, [...]

Rising employee turnover remains a significant challenge for Australian businesses. Every time a res [...]

What do Flare (HR tech/fintech), Mad Paws (an online pet care marketplace) and Hilti (power tools) – [...]

Many business owners spend years building their business to only receive a fraction of what it is wo [...]

Cloud accounting provider Reckon is selling a 120-person division to rival MYOB for $180 million as [...]

There’s something really sexy about the idea of being an entrepreneur. Why else would there be so ma [...]

Australia’s small businesses have been slow to leverage technology that would improve the customer s [...]