Contractor or Employee

Q&A Tax

Question :

Apple Farm hired a person to do farm work. The person has his own ABN and used to do farm work at
another farm. He now is paid based on a fixed hourly rate and an extra bonus if he picked extra weight
of apples per day.

Can Apple Farm pay the person as a contractor as he has ABN? or is the farm required to register for
paygw and pay the person wages as an employee?

 

Answer :

Whether the worker is an employee or contractor is a question of fact. There are six main factors to
consider:

1. Ability to subcontract/delegate: employees are unlikely to pay someone else to do the work
2. Basis of payment: contractors are paid for a result achieved based on the quote they provided
3. Contractors provide all or most of the equipment, tools and other assets required to complete the
work and do not receive reimbursement for the cost of those
4. Contractors are more likely to be legally responsible for their work and liable for the cost of
rectifying any defect in their work
5. Employees follows directions from your business while contractors have more freedom
6. Employees are not operating independently of your business

The fact that the worker has an ABN really doesn’t provide a good indicator of whether they should be
treated as an employee or contractor. Lots of individuals hold ABNs but work as an employee as well.

In this case, he is more likely to be an employee based on the payment basis which he gets fixed rate
and bonus per activity.

You can access ATO an online tool to help decide employee or contractor.

If the worker is an employee but the farm treats him wrongly as a contractor, penalties may apply to
the farm, such as PAYG withholding penalties, SGC liabilities, Director penalty etc.

For SG purpose, SGR 2005/1 outlines the basic conditions.

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