When hiring contractors, many businesses and employers fall into the trap of believing many of the myths floating around about independent contractors.
Some of these myths can cause businesses and employers to make wrong and unlawful decisions regarding their independent contractors. When dealing with independent contractors it is important to understand your relationship and obligations to them, rather than relying on the myths you have heard over time.
One of the most common misconceptions regarding independent contractors is that if any worker has an Australian Business Number (ABN), they must be an independent contractor. In reality, having an ABN makes no difference as to whether a worker is classed or can be classed as an employee or independent contractor.
Independent contractors work across many industries, but they are often more prevalent in some industries than compared to others. However, just because it is common in your business or industry to use independent contractors, does not mean that you must. It is important when considering whether to use independent contractors that you conduct your own due diligence and not rely on the fact that it is common practice in your industry.
There is a common misconception that an 80/20 rule applies to independent contractors. This misconception asserts that independent contractors cannot spend more than 80% of their time working with one business if they wished to be considered a contractor. However, this “80/20” only relates to the way in which a contractor reports their personal services income or how they claim some tax deductions. As such, it is not a factor that determines whether a worker is to be classified as an employee or as an independent contractor.
One of the most concerning myths in business relating to independent contractors is the belief that if a business is taking on contractors only, they do not have to worry about paying superannuation. This is not true, as some businesses may be required to pay superannuation for their contractors, particularly if the services being provided by the contractor is provided largely for the businesses personal labour. It is important to speak to your accountant to ensure that you are meeting your requirements in relation to your independent contractors.
Other myths that are common in relation to independent contractors are often regarding the nature of being a contractor. This includes myths that if a worker invoices you for their work, then they are a contractor. However, being paid via issuing an invoice is not the sole contributing factor as to whether someone is classed as an independent contractor, rather the entire nature of the relationship is to be taken into consideration. Similarly, just because a worker is a contractor for one job, does not mean they are an independent contractor for all working arrangements they undertake. In actual fact, each job is considered a different working arrangement and a worker can be under a different classification for each job.
These are only some of the myths and common misconceptions that exist regarding independent contractors. It is important to ensure that you do not rely on these myths and misconceptions to ensure that you engage workers on the correct basis and fulfill your relevant requirements in relation to each worker.
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