Employees Incorrectly Treated as Independent Contractors

The ATO is once again putting businesses on notice about incorrectly classifying workers. If you’ve engaged contractors in your business, it’s important to make sure they’re truly contractors – not employees in disguise.

Why It Matters

Misclassifying workers can lead to significant penalties, including:

• PAYG withholding shortfalls, for failing to deduct income tax;
• Super guarantee charges and additional penalties – sometimes up to 200% of the shortfall amount; and
• Breaches under the Fair Work Act 2009 for what’s known as “sham contracting”.

Even if the arrangement was unintentional, the consequences can be costly.

What’s the Difference?

The ATO looks beyond job titles and contracts to assess the true working relationship.
Some indicators that someone is likely an employee include:

• They work under your control and direction;
• You set their hours and provide tools or equipment;
• They’re paid a regular wage or salary; and
• They can’t delegate their work to others.

By contrast, a genuine independent contractor generally operates their own business, has control over how and when they work, invoices for their services, and takes responsibility for their own tax and super obligations.

Avoiding Common Pitfalls

Simply calling someone a contractor or having them hold an ABN doesn’t make it so. The ATO and Fair Work Ombudsman often review these arrangements – especially in industries where contracting is common (like construction, cleaning, and logistics).

To stay compliant:

• Review contracts regularly to ensure they reflect the actual working relationship;
• Check the ATO’s “Employee or Contractor” tool for guidance; and
• Seek professional advice before entering into new arrangements.

Getting classifications right protects your business from unexpected penalties – and ensures workers receive the entitlements they’re legally owed.

Simmons Livingstone can review your employment and contractor arrangements to help ensure your business meets ATO and Fair Work compliance standards. Call 1800 618 800 or email admin@simmonslivingstone.com.au to discuss your employment structures and risk management strategies.