Employers could be fined for failing to correctly classify workers as employees rather than independent contractors (and thus failing to withhold payments under the PAYG tax scheme and failing to pay superannuation contributions).

In the recent case of Farant, the main issue was whether delivery drivers were common law employees of the taxpayer and not independent contractors. The court found that they were common law employees.

Therefore, since the delivery drivers were common law employees, the employer had failed to withhold an amount from the payments it made to them in accordance with the PAYG scheme. Thus the employer became prima facie liable for a penalty equal to the amount it failed to withhold.

Factors that would be relevant to whether a worker is an employee or independent contractor would include the level of control the hirer had over the worker, whether the worker was allowed to delegate work to someone else, whether the worker was paid for results, whether the worker accepted all risks of working and so on.

It all depends on the facts of the case.

Beware: Superannuation contributions

In the recent case of Penrowse, an employer was liable for unpaid superannuation guarantee payments in relation to the reimbursement of motor vehicles expenses paid to its employee delivery drivers.

Under law, employers must make quarterly super contribution payments (or Superannuation Guarantee or SG) on behalf of employees usually at a rate of 9.25% of their Ordinary Time Earnings (OTE). There is a cap on this – which is currently $48,040 contribution for the 2014 income year. OTE includes over-award payments, commissions, allowances, loadings, bonuses, paid leave and holiday pay.

Employers who do NOT want to provide the minimum level of super support for an eligible employee in a quarter must lodge a Superannuation Guarantee Charge Statement – quarterly.

Failure to pay the correct Superannuation Guarantee payment will invoke a non-deductible Superannuation Guarantee shortfall amount plus an administrative penalty known as the Superannuation Guarantee Charge (SGC). The SGC is based on salary or wages paid to the employee during the quarter and not just Ordinary Time Earnings.

Salary and wages (being a broader concept than OTE) is therefore relevant to SGC calculation but not the SG calculation.

Should you have any more enquiries in relation to the above or otherwise, get advice first from our tax accountants and tax lawyers at The Quinn Group. Call us today on 02 9223 9166 or submit an online enquiry.

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