Our industry relies on a large and thriving casual workforce.

With the advent of social media, it has never been easier to quickly find good crew. Indeed Facebook has a couple of great groups for finding workers. A common feature of the ads in these groups is “Must have own ABN”.

What does that mean in the production industry?

Usually, it means that a contractor wants to engage the person as a subcontractor thereby avoiding the costs and obligations that come with employing casual workers. That is, PAYG withholding tax, superannuation and potentially, workers compensation insurance.

Just because a worker has an ABN, this does not automatically mean the worker is a contractor. So in many cases, none of the employer obligations are avoided.

Unfortunately it is not a simple choice. There a scenarios where a worker can be legitimately treated as a contractor, and a lot of situations where they cannot.

Is the worker paid by the hour? Does the worker have the right to pay another person to do the work? Does the worker provide any equipment, tools of trade or vehicles to perform the work? Does the worker have a company or trust structure? These are just some of the questions that the ATO uses to establish whether a work is an employee or legitimate contractor.

It is complicated and if an employer gets it wrong, they are potentially exposed on several fronts and things aren’t that great for the worker either. To be clear, it is the employer’s responsibility for getting it right and there are penalties.

So what happens if an employer gets it wrong and incorrectly treats employees as contractors?

PAYG & Superannuation – Over a long period of time, PAYG and superannuation obligations could really add up. If the ATO came calling and found a history of sham contract arrangements, they are likely to impose the PAYG and Superannuation on top of whatever has already been paid. This bill combined with audit costs, interest and penalties could get ugly. There are quite a few cases where the ATO has pursued builders, especially in relation to unpaid superannuation.

Workers Compensation Insurance – In addition to the fact that it is law, employers have a real moral responsibility to their workers. Seriously guys, if a worker is injured on one of your jobs, at the very least, you want the worker to be properly covered for health care and rehabilitation and you want to sleep well at night.

Workers Compensation laws vary from state to state. But typically, subcontractors are treated as workers under the Work Cover Act. The employer must cover them for workers compensation and declare any payments made by them to their employees as wages on their workers compensation insurance policy.

If you find that you have a genuine contractor/subcontractor arrangement, workers compensation insurance policies usually allow you to elect to cover subcontractors and a premium adjustment is made after 12 months. At the very least, the main contractor is required to ensure that all their subcontractors have workers compensation cover in place.

For workers in sham contract arrangements, they can find themselves assuming all the responsibility for PAYG tax compliance, their own superannuation and potentially not covered by any workers compensation insurance.

It is an unfortunate reality that some of the older guys in our industry are doing it tough. This is because when the industry was in it’s infancy, proper workers compensation and superannuation for casual workers was non existent. We as an industry need to learn from the mistakes of the past and look after our young workers.

The ATO has an online tool which helps you establish whether a worker is an employee or contractor (link at the end of this article). Importantly, if you answer the questions truthfully, you can save and rely on that decision.

Later this year, the tax office will be increasing their compliance activities (whatever that means).

https://www.ato.gov.au/Calculators-and-tools/Employee-or-contractor/

The information in this article is of a general nature only and does not take into account individual circumstances. Professional advice should be sought.