So you are thinking about hiring someone new for your business and someone suggested you just ask them to get an ABN and you can offer them contract work?

Is the person a contractor or an employee?

This is a topic the ATO and the courts have discussed for years.  There is both case law and legislation discussing this arrangement.  Some of the case law goes back to the 1960’s.

Much of the case law refers to the “Master” and “Servant” principle.  The servant does what the Master commands. Similar to the Employer and Employee relationship.  Who controls the relationship?  You will find in most cases the person you believe is a contractor is really just an employee.  This area is quite complex and each individual case would need to be judged on its own merits.

Please be aware, even if you are employing someone with an ABN you are still potentially liable to cover them for workers compensation insurance.  You can also be liable for Superannuation, this year it is 11.5%.  We would recommend that you make the contract payments to be inclusive of Superannuation and you withhold the superannuation and pay it directly to the contractors superannuation fund.

Make sure you get some expert advice before taking on a contractor with an ABN.