In 2012, the ATO conducted approximately 1,100 audits of businesses suspected of incorrectly treating employees as contractors. From these audits, the ATO found that 48 percent of businesses audited were incorrectly treating employees as contractors. A result of which, sham contracting, an employee is wrongly classified as a contractor to save on employee entitlements such as superannuation, leave entitlements, payroll tax and workers compensation, continues to be a major focus area for revenue authorities.
While prevailing in the building and construction industry, the ATO and state revenue authorities are spreading their focus into industries with more traditional employee-employer relationships. The ATO has advised that they will continue to investigate complaints and audit businesses to ensure they are meeting their obligations as employers and contractors remain a key issue in any payroll tax audit.
Given the ATO and state revenue authorities continue to exchange information, it is likely that the contractor issue will be examined in the short-term and findings shared across all revenue authorities.
Businesses need to ensure they have a clear internal process in engaging with and managing their contractor population. An internal review or health check would be recommended to ensure the incorrect classification of employees is identified and ensure employer obligations are met.