Employee or Contractor – Myths and Facts

The following examines some common misunderstood rules around the employee vs contractor situation.


Myth: I have an ABN so I am a contractor.

You may have an ABN but that does not make you a contractor.

Fact: The ATO has various checks to ensure business owners are treating their staff/contractors correctly.

To put it simply, the ATO will look at the work arrangement and the way the payments were calculated etc to determine whether one is an employee or not.


Myth: As long as I don’t earn more than 80% of my income from a business I am a contractor.

Fact: The ATO calls this the 80% rule or the 80/20 rule.  It is self-assessed by the individual rather than the business owner and is not a determination of whether a person is an employee or contractor.


Myth: If I issue a business an invoice, I am a contractor.

Fact: Depending on the whole work arrangement and terms of the contract, you may be considered an employee and the business may be liable to pay you super.


Myth: I hire contractors so I don’t have to pay them super.

Fact: Whether or not super is payable is determined by the behaviour of the contractor and the nature of their work. If the worker is mainly paid for their labour then super may be liable to the business.


Myth: I’ve signed a contract which states I am a contractor, so I am a contractor.

Fact: The mere fact that there is a signed written contract that states one is a contractor does not prohibit the ATO from concluding one is an employee.

The ATO will still look at the work arrangement, the calculation of remuneration etc to determine what they are classed as.


There’s no doubt these rules are complex! To assist business owners, the ATO has created a tool on their website to help determine whether they are hiring an employee or a contractor.

Access the link here


If you are need help and you would like some clarification for your situation, feel free to give us a ring.

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