When engaging someone to work for you as a contractor, it is important to understand the sometimes fine line that differentiates that contractor from being an employee.
Getting it wrong can be expensive. Not only are there penalties under legislation, but employers can be made to pay back payments and superannuation.
Sometimes it is difficult to establish whether someone is a contractor or employee. As with most most business arrangements, a well drafted contractor agreement whereby both parties acknowledge the relationship of contractor, goes a long way in confirming this relationship and eliminating misundrestandings.
That is not to say that you can deem any relationship one of a contract for services simply by putting it in writing. Disguising an employee as a contractor carries severe penalties and is considered unlawful.
There is no single definition as to what constitutes a contractor.
Whilst a contract will be an important part of assessing the relationship between the parties, the Court will also look beyond the contract and have regard to the totality or the substance of the relationship.
In particularly, those things that point towards an independent contractor are that an independent contractor:-
In contrast, employees perform their work under the direction and control of their employer, and (with the exception of casuals) on an ongoing basis with standard set work hours.
Employees are entitled to benefits such as superannuation and paid leave.
If you are unclear about whether a Principal and Contractor relationship exists, a good starting point is the ATO’s Contractor Tool