The Tax Office has indicated that it is now focussing on the practice of 'sham contracting' – whereby employees are hired as contractors – a practice which apparently appears to be spreading to new industries and occupations.
The ATO states that, under sham contracting arrangements, employers often require workers to obtain an Australian Business Number in an attempt to portray the underlying employment relationship as a contract with a business operator. This employment arrangement has the benefits of reducing labour costs and increasing flexibility of employees as there is no requirement to pay PAYG withholding tax, superannuation contributions, workers compensation, annual leave, long service leave, redundancy pay, and the list goes on. However, both employers and employees need to understand that five separate tests* under different legislation exist to determine whether an individual is an employee or contractor and therefore it is imperative that sham contracting arrangements are not entered into.
Under the ATO's new audit focus and review systems on sham contracting, it has recently completed about 1,500 field cases, and expects that an additional 3,000 audits will be completed by 30 June 2013. Sham contracting is prevalent in the building and construction industry but has now spread into the following industries and workplaces:
- call centres;
- tourism & hospitality;
- cleaning;
- telecommunications.
- security;
- education;
- logistics;
- aged care;
- retail;
- health.
Contact your Accountant at our office if you have any questions about this article on 4632 1966.
* Your Accountant can explain these tests further.
