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    • Total posts: 775

    Hi Everyone,

    I am trying to wrap my head around the ATO’s rules relating to businesses that use contractors. In particular, superannuation and work cover implications. Any advice would be greatly appreciated.

    The business in question is a roofing business that contracts trades people to complete jobs on a contract/rates basis. The majority of the tradespeople are soley committed to the business how ever, “contract/rates” is the nature of the employer/employee relationship and the work is general on a job by job basis.

    My questions is:

    The ATO says that if a contractor receives 80% of their work from one provider in a financial year, that provider becomes responsible for their super and work cover. Can anyone shed some light on this?

    Is this limited to if we provide the contractor with one contract for this duration of the financial year or does offering the contractor 50 individual jobs in the same period make a difference.

    Thanks in advance.

    • Total posts: 1,691

    No accountant or tax lawyer, but I have been working subject to these rules for many years, so here’s my take.

    Most ignore the 80/20 rule until they get caught, it’s still pretty much standard practise to engage people this way (especially residential construction).

    In most situations the man at the top of the pyramid will get the bill for workcover and super (if audited), if the people engaged don’t meet the “contractor” definition. The only way around it, is to engage via a registered labour hire company (who will be responsible for work cover and super – and charge accordingly). Otherwise it’s normally assessed as an employee, employer relationship.

    An example … Roofing company employs a contractor or subbie, to do work on piecework rate or fixed price … this is probably legit (certainly arguable), that subbie, then engages workers on flat “all in” hourly rates … this is where you start to get in the poo, you’re now pyramid contracting … common as mud, but legally a no no.

    Fairwork Australia has been hitting hard with random audits on construction subcontractors, one associate who does pay super and work cover (but was paying “all in” contract rates) got a bill for 30K.

    Off topic- but the whole thing sucks IMHO, many construction workers prefer contract rates. A principal motivation being, that lead contractors, and principals often go broke, usually without paying into any funds, or even to the ATO. At least on contract you have the money in your hand.

    Hope this hasn’t made it any more confusing.

    James Millar
    • Total posts: 1,739

    Given that there are normally at least four separate pieces of legislation that govern business employee / contractor obligations there is little wonder why it’s hard to get a straight answer. You have;

    1. PAYG withholding obligations (including deemed employees) – Taxation Admin Act 1953.

    2. Superannuation obligations (including deemed employees) – Superannuation Guarantee (Admin) Act 1992

    3. Worksafe obligations (including deemed employees) – State based Workcover / Accident Compensation Acts. All different

    4. Payroll Tax obligations (including deemed employees) – State based Payroll Tax Acts.

    While there are some common principles across these Acts they do not apply the exact same tests or contain the same exemptions. (You can easily be hit be one and not another).

    The best advice is work through the various websites and examples and make your best self-assessment. Perhaps write down your conclusions and how you reached them. If you do this there will be a documented “reasonable effort” to comply (and this would normally limits any penalty issue later on). Send some email questions to each authority and keep copies of the emails and responses.

    Alternatively you could arrange for your accountant to appraise this.

    Helping build better businesses and better lives with expert financial and taxation advice. [email protected] www.360partners.com.au 03 9005 4900
    Blackshaw Bookkeeping
    • Total posts: 13

    Something that may be of assistance to you is the ATO’s decision tool for ascertaining whether a worker would be considered an employee or a contractor under the ATO legislation.

    This is still not a fool-proof answer in itself, but at least will provide you with an initial perspective of the things the ATO will review when looking at your individual circumstance.

    The link can be found here:


    Natalie Blackshaw
    Blackshaw Bookkeeping Services – Brisbane
    [email protected]
    0402 537 723

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