The presence of a clause in a contract labeling a worker as an independent contractor isn’t the final word on their status for tax and superannuation purposes, according to recent advisories from the ATO.
Even when a contract is in place, its terms and conditions must substantiate the existence of a true independent contractor arrangement. Possession of an ABN by a contractor doesn’t automatically validate their engagement as an independent contractor. The ATO says that “at its core, the distinction between an employee and an independent contractor is that:
- an employee serves in the business of an employer, performing their work as a part of that business
- an independent contractor provides services to a principal’s business, but the contractor does so in furthering their own business enterprise; they carry out the work as principal of their own business, not part of another.”
Evolving Contracts Over Time
The ATO emphasizes that what starts as a contractor agreement doesn’t always remain so indefinitely. For instance, if a contractor was hired for a specific project and that project concludes, yet the individual continues to work for the company, it’s necessary to reassess their employment classification.
What if There’s No Written Contract?
In the absence of a formal contract, assessing the actual working arrangement becomes crucial to determine whether the relationship is more akin to employment or a contractual engagement.
