Sham contracting is the situation where employees are classified as independent contractors instead of employees.

The employer v contractor issue has long been on the ATO hitlist, and they believe that when times are getting tough, businesses may be tempted to cut corners to stay afloat or prop up their cashflow. Employers enjoy the flexibility of having a contractor rather than an employee both in terms of hours worked to be in line with the business requirements.

The ATO’s strategy for tackling non compliance in this area focuses on businesses that do not withhold payments from workers as required and fail to make superannuation guarantee contributions. This can be done by payment of cash wages or by the ‘employee’ operating with an ABN.

In an effort to help businesses, the ATO has developed an online decision support system to assist businesses making the correct decision as to whether a worker should be treated as an employee or contractor for tax and superannuation purposes – http://www.ato.gov.au/businesses/content.asp?doc=/content/00095062.htm

If you are unsure, give Mike  a call on 0401 631 904