The strategy: To work out whether I should be treated as an employee or a contractor.
Do I need to worry about that? Not if you are an employee getting all the benefits of employment such as super contributions and other entitlements. But there is a growing trend for businesses to hire individuals as contractors, rather than employees, which avoids these obligations.
If you are a bona fide contractor, that's fine. But the Tax Office is on the lookout for sham contractor arrangements where people who should be getting employment entitlements are missing out.
So what's the difference? There are a number of differences but, basically, it comes down to the fact that a contractor is an independent person providing a service to the business on set terms and conditions, whereas an employee is hired to do what the employer directs them to. It can be a fine line, but according to the Tax Office an employee is someone who is part of the employer's business, whereas a contractor runs their own business. An employee, for example, is under the control of the employer. They can be directed how to work, they can't delegate their job to someone else, they are paid for what they do, and the employer generally provides the equipment they need to do the job and takes the commercial risks. Contractors have more freedom in how they work. They are contracted to provide specific services but they have more freedom in how they achieve the contracted result. Contractors, according to the Tax Office, generally provide most of their own equipment and are legally responsible for their own work and for rectifying any defects. They tend to be paid for results rather than hours worked or commissions.
Do things like having an Australian Business Number and business name mean I am a contractor? The Tax Office says these are common myths. Neither means you are a contractor. The fact that you give your employer invoices does not automatically qualify you as a contractor either. You have to consider the entire working arrangement to work out whether you really are a contractor or an employee. Other myths include the claim that hiring contractors is standard industry practice, that only contractors can be used for short-term work, or that the individual has been a contractor on previous jobs. None of them automatically mean you will be a contractor in this instance.
Isn't there something called the 80 per cent rule? This rule relates to how you report personal-services income (income that is at least 50 per cent derived from your skills, knowledge, expertise or efforts) in your tax return and what deductions you can claim. If you derive 80 per cent or more of your income from one client, you fail this test and must report your income as personal-services income. However, the Tax Office says passing this test is irrelevant to whether or not you should be treated as a contractor.
Even if I am a contractor, is there any way I can get super from my employer? Even if you are a bona fide contractor, your employer must make super contributions for you if you are contracted wholly or principally for your labour. The Tax Office is in charge of chasing up unpaid super contributions, so if you think you are missing out, and are receiving no joy from your employer, give it a call. The Tax Office also has advice on how to tell the difference between contractors and employees at ato.gov.au.