Are you trying to manage your business alone? Or do you have a period in your business where you could really use some help? Or maybe you don’t have the money or want to be tied into hiring permanent staff?
Whether you are a small, medium or large business, hiring contractors is a great way to balance your workload with your revenue. Contractors provide the manpower to cover any extra demanding projects, without demanding the ongoing salaries plus loadings during quiet periods of work.
However, there are pitfalls for business owners who use contractors to avoid hiring full-time employees. Contractors are only to be hired for specific and temporary roles, such as helping to complete a short-term project – you must not set up a staff of contractors to avoid the responsibility of paying full-time salaries and benefits to employees.
Are there rules for hiring contractors?
If you are not sure whether you are entitled to hire a contractor, check the online help tools found at the websites of the Australian Taxation Office (ATO) and the Fair Work Ombudsmen.
The Fair Work Ombudsman provides a fact sheet explaining the difference between a contractor and an employee and outlines the support available to employees or contractors seeking clarification of their position or if they think their rights have been contravened.
The ATO provides a Employee or Contractor Decision Tool to help you establish whether your worker is a contractor or an employee for tax purposes. The Decision Tool generates a report that you can keep for your records.
What if I break the rules?
The ATO, the Office of Fair Trade and other regulators will monitor any contracting positions that may be perceived to cover a full-time position. There have been cases when certain companies have dismissed permanent employees, and replaced them with contractors to avoid having to pay superannuation, holiday pay, sick leave and other costs which are not covered by a contractor’s fee.
Any company found to be replacing full-time or part-time roles with contract positions will face serious consequences, such as prosecution from the ATO or Office of Fair Trade. If you are found to have replaced a permanent role with a contractor, you could face heavy fines and/or court action for unfair dismissal.
What can I do to ensure I stay within the rules?
When you hire a worker as a contractor follow these 8 rules to ensure you maintain a genuine and professional contractor relationship:
- Write up a Contractor Agreement to establish the terms and conditions of the contract
- The contractor should have his/her own company and you should pay this company
- Ensure the contractor is hired for a specific job to be carried out over a specific period
- Confirm that the contractor has specialized skills, including providing his own tools of trade
- The role should be defined by the outcome of the project, not by number of hours worked
- The contractor should have his/her own insurance
- The contractor maintains independent control over the work specified in the contract
- The contractor is responsible for any risk involved in undertaking the project
While not all contractor relationships will meet all 8 points, this list gives you a clearer understanding of how the ATO undertakes its assessment of such relationships.
From here, you have a better chance of establishing ethical work relationships, keeping yourself and your business safe from the expensive and damaging consequences of incorrectly hiring a contractor.