More and more people are now being hired as independent contractors instead of regular employees. This shift is driven by several factors.
The Employer
One reason is that businesses find it more cost-effective to hire independent contractors. Unlike employees, independent contractors are responsible for their own taxes and benefits, which reduces the financial and administrative burden on the business.
Another factor is flexibility. Independent contractors offer businesses greater flexibility in staffing. They can be hired for specific projects or time periods, allowing businesses to adapt their workforce according to their needs. This flexibility is particularly useful in industries with varying workloads or seasonal demands.
The Worker
From the worker's perspective, being an independent contractor provides advantages as well. Contractors have more control over their work, including negotiating contract terms, choosing projects, and deciding how to perform their work.
However, it's important to note that being an independent contractor comes with responsibilities. Contractors are responsible for managing their own taxes and expenses, which can impact their overall income.
What Next?
Determining whether someone is an employee or an independent contractor involves considering various factors, such as the level of control over work, the nature of the relationship, and the degree of risk involved. It's important to assess the overall working arrangement rather than relying solely on job titles or labels.
For the employer, getting this wrong can cost a lot of money in the form of superannuation and other entitlements. If you are unsure, please contact us for advice.
For the worker:
- Being an independent contractor will be more work when it comes to your tax return. This includes keeping good records and putting aside money to cover your income tax because your employer will not be doing it for you. The second year is always the hardest, because you will be paying tax from the previous year and that year at the same time. Start putting money aside early. A good place to start is one third of your income.
- Don't forget about your superannuation. Consider putting something in regularly to prevent any fees and insurances depleting your balance. Contributions up to the annual cap can be tax deductible.
- There are opportunities to access tax advantages you did not have as an employee, please contact us for advice and support.