Permanent Employee to Contractor

[Glen Callaghan]

Hi there,
We have a Permanent Employee based in Victoria who for financial reasons is going to become a consultancy contractor. We are reliant on the persons skills and don't want to lose them to a current work project. They are happy to stay working for us but want to convert to contractor rates/contract.
We are aiming to retain their services for a 12 month period for current IT contract... so it can be linked to a fit for purpose project.
I realise this will be potentially set a negative precedent to other staff as they too may like to switch to more lucrative rates, but in regard to the legal aspect, do others have experience of this.... is a too much of a risk in relation to "sham contracting" ?

Thank you
Glen

[Moz]

Glen,

I've had a lot to do with employment of contractors and I can assure you that if this arrangement is ever scrutinised by the ATO the person will be deemed an employee.

Your company may be fined for avoiding PAYG and SGR obligations.

Your State Revenue Office may be on your case for avoiding payroll tax and Workcover may have something to say about your remuneration calculations.

What happens to the "Contractor" will probably depend on his individual situation and what he is declaring in terms of taxable income.

My advice - don't do it.

Moz

[Tiger]

Glen,
My advice - don't do it.
Moz

I agree with Moz but one more point; you are obliged to sight proof of all the insurances a contractor must have, which includes workers comp, public liability etc.

Tiger

[Qld IR Consultant]

Don't engage them directly as a contractor. Go through a contractor management firm who will scrutinise their adherence to the independent contractor requirements. There is a raft of issues to deal with so seek some advice before you go ahead.

[Glen Callaghan]

Thanks all for the advice, we are going to avoid the contractor route, too risky and unfair to other members of perm staff.

[Moz]

I think that's very wise Greg.

Apart from any other fairness issues, the ATO have been cracking down on "contractors" for years now and there are thousands out there who would fail the current ATO tests to determine whether they are truly indepenent contractors for the ATO's purposes.

But going from perm to contract with the same company was considered risky even 20 years ago, before the ATO started to put firm rules in place.

People can get away with it, but if the ATO comes knocking they wouldn't have a leg to stand on.