Contractors – make sure you meet ATO requirements

Freelancers, contractors and subcontractors, and all businesses or companies that hire contractors, need to be aware of the Australian Tax Office (ATO) definitions of ‘contractor’, as opposed to ’employee’, and what comprises a contractor/client relationship, as opposed to an employee/employer relationship. All contractors need to meet the ATO requirements of being a contractor or they may find themselves in trouble, and may even lose their ABN.

ATO requirements around contractors

If you are a contractor, to make sure you are meeting the ATO’s requirements around being a contractor, as opposed to an employee, you need to know the difference between an employee and a contractor which is clearly outlined here: ATO: difference between contractors and employees.

The ‘independence’ that you must have if you are a contractor (in terms of your relationship with your clients, the people who are hiring you) in order to meet the requirements is clearly outlined here: ATO: Independence (of contractors)

What about the client or employer hiring a contractor?

If you are a business who hires workers, you need to make sure your contractors meet the ATO requirements outlined in the above links, otherwise you may technically be in an employer/employee relationship rather than in a client/contractor relationship and therefore would have to meet the requirements of an employer (such as paying your employee super, hourly wages, etc.)

The importance of businesses who hire contractors of meeting the ATO’s requirements and the penalties that can be imposed if they do not meet those requirements are outlined here: ATO: Why you can’t treat employees as contractors

Recent news about contractors losing their ABNs

Regarding recent (April 2018) media coverage of the ATO taking contractors’ ABNs away from them so they could no longer work as contractors, I have seen the news items but don’t have any background information about those cases or know why the ATO ‘took back’ their ABNs, so will make no comment except that if contractors make sure they meet all the requirements mentioned in the above links, and demonstrate to the ATO that they meet those requirements, the ATO should be satisfied they are contractors, not employees, and allow them to keep their ABNs.

How to hire contractors safely

I’m a sole trader scribing and editing business (On Time Typing). I am a contractor with many clients. To meet demand, I hire a team of subcontractors: transcriptionists, scribes and editors. Each subcontractor works individually and autonomously, using their own equipment and resources to provide their services to On Time Typing. I make sure my contractors are aware of the ATO requirements around being a contractor and the client/contractor relationship, and stress the importance of meeting those requirements. Because sticking to the ATO’s rules (as per the links above) is the surest way to make sure my contractors and I are operating legally.

More information

The tax and super obligations of clients and contractors, as opposed to employers and employees, are detailed here: ATO: Your tax and super obligations.

Great information about whether you are a contractor or employee, and the requirements of being or hiring a contractor: ATO: Myths and facts

This article is based on my own experiences of dealing with the ATO, accountants and contractors, and as owner/operator of On Time Typing, my scribing, writing, editing and proofreading business, since 2002.

Image: Creative Commons Licence – thanks to WOCInTechChat

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