Rigby Cooke tax and wealth partner Keith Kendall believes players in the gig economy are going to be a big target of investigations, with those businesses who employ contractors potentially landing themselves in hot water, and exposing themselves to large tax bills and other penalties.
Mr Kendall explained “treating employees as independent contractors, and thereby failing to withhold pay-as-you-go tax instalments and failing to pay superannuation, could result in employers paying back years’ worth of tax instalments, and facing fines for failing to withhold super”.
“... If those businesses are exerting too much control over their workers, and thereby forming an employee-employer relationship rather than a business-contractor relationship, the costs could be huge.”
In making his point, Mr Kendall pointed to food delivery business Foodora, which recently exited the Australian market under investigation by the Fair Work Ombudsman, after it was alleged the company had “engaged in sham contracting activity that resulted in the underpayment of workers”.
“What it boils down to is whether a contractor is engaged principally for their personal labour,” said Mr Kendall.
“A very popular misconception is ‘so long as the worker has an ABN, then they’re a contractor’.
“This is just not the case, and the cost of getting it wrong can be very high, not just for employers – workers who may be attempting to minimise tax by operating through a company or trust could be exposing themselves as well.
“And it’s also not enough to simply put a contract in place, the courts take a substance over form approach in these cases, so just saying someone is an independent contractor isn’t enough.”
According to Mr Kendall, the risks can be avoided by going through a check-list.
“The major rules of thumb that I look for when trying to spot these issues is who asserts the control over how the work is done? Who’s providing the tools? Who decides when the work is being done? Who’s providing the facilities? Who’s responsible for correcting mistakes?” he said
“Having a legitimate business-contractor relationship does not necessarily exempt the business from providing employee benefits, such as compulsory superannuation contributions.
“For example, while an IT consultant may be a genuine contractor, the fact that they are not providing their own tools, and that all they are doing therefore is providing personal labour, means they may be covered by the superannuation provisions.”
In conclusion, Mr Kendall acknowledged that the rise of independent contracting may be overstated in the ‘gig economy’ era, with the most recent Household, Income and Labour Dynamics in Australia (HILDA) confirming the proportion of independent contractors in Australia has remained static at 8.5 per cent.
“While the number of people who are ‘solo self-employed’ may be stable, 8.5 per cent still represents a sizeable chunk of the workforce, so the risks associated with misidentifying these workers are significant," he said.
“All businesses, particularly those whose workforce consists primarily of contractors, like operators in the gig economy, need to make sure they are following the rules.”