Recently, the Australian Taxation Office (ATO) has released further guidance in relation to making the correct distinction between an employee and an independent contractor.

The guidance has been updated due to two major High Court of Australia cases in 2022 that changed how we should look at contracts between a business and a worker. The guidance also clearly explains when the ATO will apply compliance resources to specific arrangements. This generally means undertaking a review or audit.

We must review some of the arrangements you have in place with independent contractors, as there are several differences in reporting obligations and whether additional amounts need to be withheld from a payment to a worker by you.

Why the change?

The change occurred due to two High Court of Australia cases handed down in 2022. It changed the way the ATO is required to administer the law as the High Court judges stated that the contract between the business and the worker is the sole source of information used when determining whether a worker is an employee or an independent contractor.

The ATO has updated their guidance in line with the judges’ decisions but also added a caveat that there must be evidence to show that the contract agreed to between a business and the independent contractor is being performed according to the contract.

What do I need to do?

It is recommended that any relationship with an independent contractor that could be considered an employee of yours be reviewed by us to see whether the agreement with the ATO compliance team is high risk.

If you do nothing, and it is found that some of your independent contractors are, in fact, employees, you may be liable for backdated withholding on their wages, as well as outstanding superannuation.

If you wish to engage us by taking a look at some of your agreements with these contractors, please contact our office, and we will get this review started.