Knowing the difference between an employee and a contractor is an important definition that employers and business owners need to understand. It’s against the law for a business to treat their employees as contractors for the purpose of lowering their labour costs, trying to avoid tax and superannuation obligations or denying their employees of their entitlements.
While some business owners will deliberately incorrectly treat employees as contractors as a method of saving costs, some employers who are unaware of the consequences unintentionally accept an employee’s offer to work as a contractor on the strength of having an ABN.
For business owners who get the definition wrong there are penalties (which can be hefty) and charges that apply including:
-PAYG withholding penalty – for failing to deduct tax from worker payments and sending it to the ATO;
– Super guarantee charge which consists of the super guarantee shortfall amounts; the amount of super contributions that should have been paid into a complying fund; interest charges and an administration fee;
-the ATO can also impose additional penalties of up to 200% of the super guarantee charge.
The ATO provides a tip-off hot line for employees who believe there are treated incorrectly.
Reference: https://www.ato.gov.au/business/employee-or-contractor/employees-treated-as-contractors/