|Who really is an employee?
If you are paying a contractor who is later deemed to be an employee by the Tax Office, the Tax Office can make the directors liable to pay PAYG Withholding for up to 5 years and these payments will not be tax deductible.
Deciding whether a Master/Servant relationship exists is the key to determine whether you have engaged a contractor or an employee.
It is up to the employer to decide whether a person is an employee or a contractor.
If an independent contractor relationship exists, tax does not need to be withheld; however tax must be withheld from the remuneration of an employee. The existence of a right to control how, where, when and by whom particular work is to be carried out, points very strongly and usually conclusively to the employee status.
A contract which is, in reality, an attempt to disguise what is really a Master/Servant relationship will not avoid the requirement for tax to be withheld.
The Tax Office’s Employee/Contractor on-line decision tool can be used to help you make the determination of employee or contractor.