Business owners need to be aware of the difference between an employee and a contractor so that they are able to meet their tax and superannuation requirements.
It is illegal for businesses to incorrectly treat their employees as contractors. This is because it allows businesses to unlawfully reduce their labour costs and gain an unfair advantage over their competition.
In general, an employee:
performs work under the direction and control of their employer
bears no financial risk
is entitled to have superannuation contributions paid into a nominated fund by their employer
has income tax deducted by their employer
has a high level of control on how and when they complete work
bears responsibility and liability of poor work
pays their own superannuation
pays their own tax and GST to the ATO
Businesses need to be aware that incorrectly treating an employee as a contractor can result in financial penalties and charges, such as the PAYG withholding penalty and superannuation guarantee penalty.
The ATO is using a combination of education and compliance action to ensure that all businesses are on a level playing field.