It’s the digital-age old dilemma: are you dealing with employees or contractors? After decades of confusion by businesses, the tax authorities have been cracking down on ‘digital marketplaces’ (the online platforms increasingly being used to find and buy cloud-based services). If you’re a digital marketplace, the tax authorities are exploring a new angle to treat you as an employer. Don’t be the next one to be caught!
Digital marketplaces – the ATO’s new battleground
For the past couple of years, the ATO and Offices of State Revenue have intensified their reviews of employee/contractor arrangements. Many marketplace arrangements were found to be employment of workers by the platform, and such marketplaces had to rethink their model or more often shut down, as their model did not allow them to bear these additional expenses, let alone any past underpayment of liabilities.
The ATO’s position is that being a marketplace does not prevent you from having a relationship with the workers akin to employment.
Digital marketplace = employment agency?
Digital marketplace = employment agency?There is a concern that taxation authorities may use the argument that digital marketplaces are providing employment agency contracts. This would typically be the case where the marketplace procures the services of a worker for a customer of the marketplace, and there is no direct contract between the worker and the customer. Sound familiar?
Employment agencies (aka. ‘labour-hire firms’) are subject to Superannuation, PAYG Withholding, Payroll Tax and Workers Compensation Insurance, even where no employment relationship can be found with the employment agency!
Hiring through other companies does not fully protect you
Many businesses restrict their dealings to other companies as a proven way to avoid paying superannuation or PAYG Withholding on salaries. However, this will not protect you from exposure to Payroll Tax and Workers Compensation Insurance, which look beyond entities.
So what should you do to avoid these pitfalls?
Test your business against the rules
As, a digital marketplace, you’ll still need to go through the rules checklist (below) and ask yourself how much freedom the workers really have when complying with the terms and conditions of your marketplace. The rules are complex, but here is a (simplified) summary:
- It does not matter what you call employees or contractors, only how you interact with them.
- You must take care of the following for employees: Superannuation, PAYG Withholding, Payroll Tax, Workers Compensation Insurance.
- Whether someone is an employee or a contractor will be decided on a balance of probabilities test, based on the following criteria:
See Accru’s article Employer vs Contractor myth busting for more information.
The ATO heavily relies on their online decision tool, so make sure you put your business to the test!
Have your employment contracts professionally reviewed
We see too many clients relying on ‘Contractor Agreements’ they find online from other marketplaces that have been around for a while. Never mind that they might be the next one reviewed by the tax authorities – we are talking about the core of your business, and your people are likely your highest cost centre – your solution should be tailor-made!
If you are running a digital marketplace, make sure that your agreements with the workers have been reviewed by a professional to avoid nasty surprises down the line.
Accru Felsers work closely with legal firms to ensure our clients’ contracts are properly drafted to achieve the intended outcome. Please contact us if you would like our help running a health check on your marketplace arrangements. We specialise in digital businesses and are very familiar with the specific challenges you face.