The ATO has released new guidance that could significantly impact how small businesses engage and classify workers. If you hire contractors, it’s time to take a fresh look at your contracts — and your compliance risk.
Recent High Court rulings and the ATO’s Taxation Ruling TR 2023/4 have shifted the focus from how work is done to what’s written in the contract.
This means your contracts need to clearly and accurately reflect the working relationship. If they don’t — or if the arrangement has changed — they may not hold up under scrutiny.
Misclassifying an employee as a contractor can lead to serious tax and superannuation penalties. Even if your contractor agreement is sound, you may still owe super under broader definitions in super law.
For example, contractors who provide labour or personal services like tradies, musicians, or freelancers may still be eligible for super, even if they’re not “employees” in the usual sense.
To help ensure compliance, review these key contract areas:
1. Control: Who decides how and when work is done? More control by the business typically indicates an employment relationship.
2. Delegation: Can the worker subcontract or delegate tasks? Contracts allowing workers to freely assign tasks to others generally support contractor status.
3. Payment: Are they paid per hour or per job or by result? Results-based payment models typically align with contractor arrangements.
4. Equipment: Do they supply their own tools? If yes, this would strengthen their contractor status.
5. Risk: Who wears the risk if something goes wrong? Limited risk exposure by the worker normally suggests an employment relationship.
If your contract gives the business tight control and leaves little independence to the worker, they may actually be an employee in the eyes of the ATO.
Getting worker classification right is now more about what’s in writing than what happens day to day. Clear, up-to-date contracts aren’t just good business practice — they’re now essential to managing your tax and super risk.
Need help reviewing your contractor arrangements? Talk to your accountant or legal advisor today.
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