It seems like the ATO is getting ready to go into battle on the employee/contractor with their rather aggressive position statement. ATO Deputy Commissioner Steve Vesperman, in a recent (February 2016) press release, said there are many myths about employee/contractor arrangements, and that it is important for all businesses to get the distinction right.

“We know from our own field work that many businesses are getting the employee or contractor decision wrong, and often this is just not knowing what determines one from the other,” Mr Vesperman said.

Incorrectly treating employees as contractors is a problem in many industries, in particular the building and construction, cleaning, road transport and security industries.

Mr Vesperman said while most business tried to do the right thing, some businesses deliberately treated their employees as contractors to illegally lower their labour costs by not withholding tax or paying the super guarantee.

The following are the ATO’s views in relation to some “myths” about employee v contractors. My views are also included.

Myth # 1: If the worker has an ABN, they’re a contractor.

ATO view: Having an ABN makes no difference, and will not make your worker a contractor for a job. If the working arrangement is employment, whether your worker has or quotes an ABN will not make them a contractor.

Tony’s view: Having an ABN is only one factor, and certainly not determinative. It does, however, show some intent by the worker to be considered a contractor. Make sure your contractors do have an ABN.

Myth #2: If the worker only works for short periods, they’re a contractor.

ATO view: Just because work is short term or irregular makes no difference and will not make your worker a contractor for a job. The working arrangement determines whether they are an employee or a contractor, not the amount of time they work for you.

Tony’s view: Short term or irregular work suggests a more flexible working arrangement more akin to a contract. But it is the working conditions that will determine the legal status of the working arrangement.

Myth #3: If others in my industry are doing the same, then my worker is a contractor.

ATO view: Industry practices make no difference and will not make any of your workers a contractor for a job. Don’t assume other businesses have worked it out correctly – it’s your working arrangement that determines if your workers are employees or contractors.

Tony’s view: This is a killer because it’s true. Many times I have been the bearer of bad tidings that businesses have tax liabilities because their workers are employees. This makes the business uncompetitive. Between a rock and a hard place. If you want your workers to be contractors, make sure the arrangements are such to support this view.

Myth 4: If the contract or agreement says so, the worker is a contractor.

ATO view: A contact or agreement makes no difference and will not make your worker a contractor for a job. If the working arrangement is employment, a contract or agreement stating the worker is a contractor won’t override this employment arrangement or change the obligations you need to meet.

Tony’s view: Make sure you have a contract, and make sure the contract reflects the actual arrangements. Contracts that say one thing but operate another (which is what I think the ATO are referring to) are not worth the paper they are written on.

Myth #5: If the worker submits an invoice, they are a contractor.

ATO view: Submitting an invoice for work done or being “paid on invoice” makes no difference and will not make your worker a contractor for a job. The working arrangement determines whether they are an employee or a contractor, not whether they submit an invoice.

Tony’s view: One of the best tests of a contractor is that they are paid to produce a result. This should, where possible, be reflected in the invoice they provide.

Typically the ATO takes a very one-sided view of these matters. While what they say is largely correct, it is critical that any contractor has an ABN, and where possible, written contracts should be in place and invoices issued. All of these factors do make a difference (despite what the ATO says) but it is the actual nature of the working relationship that will ultimately determine whether the worker is an employee or a contractor. These factors may help to correctly identify that arrangement.

Be prepared for the ATO to follow the stance of the State and Territory Offices of State Revenue and take a hard line on this issue. Whether or not the position will be supported by the courts is a different matter.