Are you a sole trader who hires or works with other people? If so, you need to know the difference between employees and contractors, and how it affects your tax and legal obligations.
An employee is someone who works for you on a regular basis, in exchange for a wage or salary. An employee has an employment contract that sets out their work conditions, such as hours, duties, leave, and benefits. An employee is entitled to certain rights and protections under the law, such as minimum wage, superannuation, workers’ compensation, and unfair dismissal.
A contractor is someone who works for themselves and provides services to you for a fee. A contractor has a contract for service that specifies the scope, duration, and outcome of the work, as well as the payment terms. A contractor is responsible for managing their own tax, superannuation, insurance, and business expenses. A contractor is not covered by the law, but by the common law and the Australian Consumer Law.
The main difference between employees and contractors is the degree of control and independence they have over their work. Generally, the more control, direction, and integration you have with the worker, the more likely they are an employee. The more freedom, autonomy, and flexibility they have over their work, the more likely they are a contractor.
There is no simple test to determine whether a worker is an employee or a contractor. It depends on the nature and circumstances of your work relationship, not on what you or the worker call it. You can use the ATO’s Employee/Contractor Decision Tool or the FWO’s Independent Contractors Decision Tool to help you assess your worker status. However, these tools are not definitive and may not cover all situations. You should also seek professional advice from a tax agent, an accountant, or a lawyer if you are unsure or have a complex case.
As a sole trader who hires or works as a contractor, you need to be aware of your tax and accounting obligations, and how to comply with them. Here are some of the key things you need to do:
– Register for an ABN and use it for all your business transactions
– Register for GST if your annual turnover is $75,000 or more, and charge GST on your invoices
– Keep accurate and complete records of all your income and expenses, and store them for at least five years
– Report your business income and expenses on your individual tax return, and pay tax on your net profit at your marginal tax rate
– Pay quarterly PAYG instalments to the ATO based on your estimated tax liability
– Claim all the deductions that you are entitled to, such as home office, car, travel, and equipment expenses
– Pay superannuation contributions for yourself and your employees
– Provide payment summaries or income statements to your employees and contractors at the end of the financial year
– Lodge a TPAR to the ATO if you pay contractors for certain services, such as building and construction, cleaning, courier, road freight, or information technology
Managing your tax and accounting as a sole trader can be challenging and time-consuming, especially if you hire or work as a contractor. That’s why you need a reliable and professional tax and accounting partner like A&H Accountants. We are experts in tax and accounting for sole traders and small businesses in Australia. We can help you with setting up and registering your business, preparing, and lodging your tax returns and BAS, maximising your tax deductions, and minimising your tax liability, managing your cash flow, and budgeting, planning your tax strategy and structure, advising you on the best practices and compliance issues, saving you time and money and giving you peace of mind.
If you want to learn more about how we can help you with your tax and accounting needs, contact us today for a free consultation. We are here to support you and your business success.
Contact Information:
Phone: (03) 9996 7419
Email: info@aandhaccountants.com.au
Website: https://aandhaccountants.com.au/
