If you operate a business and engage a worker, you’re responsible for identifying whether a worker is an employee or contractor. If you employ workers incorrectly under an ABN, you can be penalised.
The following things mean someone is entitled to an Australian Business Number (ABN):
- You’re carrying on or starting an enterprise in Australia.
- Or, you’re making supplies connected with Australia’s indirect tax zone.
- Or, you’re a Corporations Act company.
The Australian Business Register are cracking down on ineligible ABN holders. This is because many employees in ‘irregular’ or casual jobs (such as performers, musicians, labourers and consultants) are commonly being asked to get an ABN by employers, when they are not actually eligible for one.
Despite the fact that an employer can’t ask someone to get an ABN as a condition of employment, some are still telling workers that they need one in an attempt to treat employees as independent contractors.
But it’s not up to the employer to just decide that someone is a contractor. It’s all about the exisiting working relationship.
A genuine contractor is running a business, which means they:
- Pay their own income tax and GST directly to the ATO.
- Source their own clients (e.g. through advertising).
- Delegate work to others, without approval from any employers or managers.
- Are responsible for quoting work, including setting or negotiating their own prices and invoicing.
- Have a separate business bank account.
- Pay for their own business insurance (e.g. public liability).
If none of those things apply, then they’re an employee, not a contractor (and therefor not eligible for an ABN)!
The Australian Business Register (ABR) identifies and cancels ABNs where there is no entitlement. They are currently conducting regular ABN entitlement reviews, particularly in industries where there are high levels of misuse. If you think you have incorrectly asked a genuine employee to work for you through an ABN, make sure to correct the issue.