Your employees at the heart of your business, and, along with accurate accounting services, are integral to remaining tax compliant. One of the most common and serious issues encountered in the workplace is the question of whether a particular person is considered a contractor or an employee.
So what exactly is the difference?
In the spotlight
The Australian Tax Office has recently shone a spotlight on the issue of misinterpreting the employee vs contractor work relationship difference.
“We know from our own field work that many businesses are getting the employee or contractor decision wrong, and often this is just not knowing what determines one from the other,” said Deputy Commissioner Steve Vesperman.
In essence, a contractor is not an official member of your business, while an employee is. While this is a simple distinction to make on paper, in reality can become quite blurred, and the penalties for getting it wrong can be quite severe.
Here are a few common mistakes:
- An agreement that states the person is a contractor does not make them a contractor.
- Short-term workers are not necessarily contractors. A person can work only work for you for one day a year and still be considered an employee.
- Just because other businesses treat similar workers as contractors, does not mean it is accurate.
Ultimately, there are a few key ways to tell the difference. If they provide their own equipment, are paid for their results, are able to subcontract and operate a business independent of yours, then they are likely a contractor. If this is not the case, they are likely an employee.
Your best bet to remain tax compliant with your small business is to hire a professional business accountant. Here at DBS Accountants, we can help you with all aspects of your business, from payroll solutions to tax returns. For more information, get into contact with us today!