As an employer, your obligations to your employees are vastly different to your obligations to any contractors you engage.
This means that the type of bookkeeping and bookkeeping tasks required for employees and contractors are also very different.
However, thanks to Australia’s complicated HR laws, just because someone says they’re a contractor doesn’t mean that they actually are one. In fact, identifying whether someone is an employee or contractor can be difficult. Yet this is something you need to get right, because getting it wrong can have far-reaching effects and can cost your business $$$ in fines and penalties.
Contractor Bookkeeping Tips
Bookkeeping for independent contractors is fairly straightforward, because your obligations to them are fairly straightforward.
When you engage a contractor, you’re not obliged to concern yourself with their superannuation or even their tax. That means that there’s no payroll processing or employer super contributions to worry about. Instead, you simply need to pay your contractors’ invoices, which is something your EzyAccounts bookkeeper can take care of for you.
Employee Benefits Accounting
Bookkeeping for employees is more complicated than bookkeeping for contractors because, as an employer, you’re under many obligations to your employees. As such, bookkeeping for employees is also more time-consuming.
If you hire employees, you’ll need bookkeeping software that includes payroll processing and can handle compliance obligations such as employer super contributions, payroll tax and PAYG payments. Your EzyAccounts bookkeeper can recommend the most appropriate software for you, and help you to use it appropriately to fulfil your obligations as an employer.
When is a Contractor not a Contractor?
While the differences in your obligations to contractors vs employees aren’t that complicated, identifying whether or not someone is a contractor or an employee is very complicated.
In Australia, just because an individual working for you has an ABN or only comes in occasionally as a specialist doesn’t necessarily make them a contractor.
Instead, it’s important to consider 6 key factors. These are:
- Whether they can subcontract/delegate work (contractors typically can, employees cannot)
- Whether they’re paid a set amount per period or per item/activity (employees), or paid a quoted price for an agreed result (contractors)
- Whether the provision of equipment, tools, and other assets is up to you or them (you provide for employees, contractors provide for themselves)
- Whether they take commercial risks (employees do not, contractors do)
- Whether they control the way work is done (contractors can, employees cannot)
- Whether they operate independently from your business (employees do not, contractors do)
Employee & Contractor Regulations
Getting the contractor vs employee distinction right is important because it determines what sort of bookkeeping tasks you’ll need to plan and implement.
But it’s also important because getting the distinction wrong could land your business in trouble with the ATO and Fair Work Australia, and fines from Fair Work Australia can be crippling.
For example, if a contractor has been working with you for 10 years, and Fair Work Australia decides they’re actually an employee, you’ll be instantly liable for 10 years’ worth of superannuation contributions, leave payments, and more. That could easily add up to hundreds of thousands of dollars. Not a mistake you want to make.
Speak with an Expert
Clearly, the contractor vs employee question isn’t one to leave to chance. To be absolutely certain you’re getting it right, we recommend you speak with an HR professional. Your EzyAccounts bookkeeper. should be able to recommend one in your local area and help your business to meet your bookkeeping requirements.
You may also want to consult the ATO’s Employee/Contractor Decision Tool.