It appears that regulatory bodies have increased audit activity in respect of company’s who use contractors as the main part of their workforce, typically seen in industries such as construction and cleaning to name just a few.
Should the audit find the contractors of the company are actually employees pursuant to the relevant law the company can then find itself liable for unpaid super, PAYG, workers compensation premiums and payroll tax (let alone potential employee entitlements such as annual leave and long service leave etc). Often the company has no possible way to meet its crushing new liabilities and the director must consider both the company’s options and their own personal liability.
Please click on the link https://www.ato.gov.au/Business/Employee-or-contractor/How-to-determine-if-workers-are-employees-or-contractors/?anchor=P27_3519#P27_3519 for a guide on the ATO’s position on whether your workers would be considered contractors or employees.
ATO Debts – Outstanding PAYG / Superannuation Guarantee Charge
The company must report its PAYG obligations within three months of their due dates or the director becomes personally liable for said obligations.
If all obligations are reported and the ATO issues a Director Penalty Notice to try and collect the outstanding amounts the director can have the personal liability penalty remitted if they at any times within 21 days of being ‘given’ the notice:-
- Place the company into Liquidation or Voluntary Administration
Payroll Tax Obligations
Payroll Tax and other NSW state taxes can become a personal liability of a Director under a similar regime to the DPN regime detailed above. Section 47B of the Taxation Administration Act 1996 (NSW) outlines a regime the rules whereby a “compliance notice” will be issued to a director. Similar to the regime above , the compliance notice can be rectified by placing the company into liquidation or administration.
Sections 145, 145A and 175A of the Workers Compensation Act 1987 (NSW) provide the circumstances whereby a director may be personally liable for payments to an insurer in respect of a workers compensation claim and outstanding premiums.
In circumstances where a contractor’s audit has been undertaken and contractor’s have been deemed employees by the ATO the best option available to a company and it’s director may be to place that company into voluntary administration or liquidation.
For a confidential free chat regarding you or your client’s situation please do not hesitate to contact Mr Josh Taylor of my office on (02) 9251 5222.