Are you employing a tradesman as a contractor or employee?
This is the question many business owners must ask themselves when taking on a tradesman in their business. Treating an individual as a contractor when they are actually an employee can pose hefty penalties, which can easily be avoided if you get it right from the start.
Individuals that are deemed to be employees are required to have superannuation paid on their behalf and Pay As You Go (PAYG) withholding tax withheld from their wages above certain thresholds. Sick leave, annual and long service leave may also apply.
If this situation should arise in your business, it’s best to seek advice to ensure you are paying your tradespeople correctly and they are receiving all the benefits they are entitled to.
Scenario: employee or contractor?
Vincent runs his own carpentry business, Hard Nails Carpentry, and wants to enter into a contactor arrangement with Barry, an apprentice, to assist him with the growing demands from his customers.
The contract for Barry outlines the following:
- Vincent will delegate the additional work he has during the day to Barry
- Barry will be paid on an hourly basis
- No leave entitlements will be awarded to Barry
- Barry will be reimbursed for any tools purchased
- Barry will need to register for an Australian Business Number (ABN) to work as a contractor for Vincent
Under this scenario, Barry will not be able to work for Vincent as a contractor as he is undertaking an employee relationship with Hard Nails Carpentry.
The lack of independence working under the direction and control of Vincent, being paid on an hourly basis and not being required to provide his own tools deems Barry an employee and not a contractor to the business. As a result, Vincent would be required to pay Barry a superannuation guarantee (SG). This minimum SG payment of 9.5% will be payable if Barry earns above the minimum threshold of $450 (before tax) in a calendar month.
Payment of accrued leave entitlements and PAYG withholding tax are additional requirements to ensure Vincent is complying with his obligations as an employer. Failure to meet these compliance measures when due, would result in Hard Nails Carpentry being liable to pay the SG owed, penalties for non-compliance, and the tax deduction for superannuation payments being disallowed.
MORE INFORMATION FOR TRADIES
For more information on business tips and relevant articles to your business visit the RSM Tradie Toolkit page.
RSM 's Tradie team is specialised in providing advice to businesses within the trades industry. With our extensive knowledge of the issues small businesses face, we can assist business owners to make the right decision for their business and provide support every step of the way.