Engaging Contractors

A common part of running a business is hiring workers. Just like when you hire employees, when engaging contractors, there are important steps you must take to ensure you are meeting your business obligations.

We have included below a simple checklist to follow when engaging contractors. Further information can be found on the ATO website here.

Employee or contractor?

If you hire a worker, you must check if they are an employee or contractor. It’s important because it affects your tax, super and other obligations and penalties and charges may apply if you get it wrong. If you previously hired a worker without checking, review your decision now to make sure you got it right.

The ATO has an online tool that can assist with determining if a worker is an employee or contractor.

Tax and super obligations

If your worker is a contractor, the following will apply;

• A contractor will generally look after their own tax obligations, so you don’t have to withhold tax from payments to them.
• However, you will need to withhold tax if they don’t quote their ABN to you, or you have a voluntary agreement with them to withhold tax from their payments.
• You may still have to pay super for individual contractors if the contract is principally for their labour. If a contractor is eligible for superannuation guarantee, you will need to do the following;
• Give the contractor a Standard choice form (or equivalent) within 28 days of them starting, so they can nominate their preferred super fund. Check that the fund they’ve nominated is a complying fund.
• If the contractor gives you their tax file number, you must give it to their super fund the next time you make a payment for them, or within 14 days, whichever is the later.
• You’ll need to set up an electronic system to report and pay your super contributions using SuperStream.
• You don’t have FBT obligations for contractors.

Taxable payments annual report

The Taxable payments annual report (TPAR) tells the ATO about payments that you make to contractors for providing services. You may need to lodge a TPAR by 28 August each year if you are a business providing any of the below;

• building and construction services
• cleaning services
• courier services
• road freight services for contractor payments
• information technology (IT) services
• security, investigation or surveillance services
• mixed services (a business that provides one or more of the services listed above)

Record keeping

Keeping employment and contractor records is an essential part of running your business and helps you to claim all your deductions. All employee and contractor records must be kept for five years. Records may be paper or electronic and must be in English. Information about what records you need to keep can be found here.

If you are thinking of hiring workers in your business or are unsure if you are meeting your obligations for current workers, do not hesitate to contact our office!