So you have recently hired a nanny who says they have an ABN number, allowing you to skip the whole annoying expensive time consuming matter of becoming an employer and paying them as a contractor.
Be aware that in the long term, it may not be so simple.
The distinction between who is a contractor and who is an employee can be a very grey area, it is important to clarify what status your nanny is as different legal and tax obligations apply. And it’s your obligation as an employer to ensure the correct amount of PAYG tax, super and workers compensation is being applied.
A key factor in deciding if your nanny is an employee or contractor is the degree of control that can be exercised over them. If the parent/s has the right to direct how, when, where and who is to perform the tasks, the nanny is likely to be an employee. For example, its the difference between hiring a temporary nanny through an agency and not having control over who is going to arrive to perform the tasks to having an individual nanny turning up one day a week on an ongoing basis – if the nanny has to turn up at set times, follow strict guidelines and can’t delegate the work to someone else then they are an employee.
Not sure? Use the ATO tool to determine employment status.
Please note: this is worth researching as the ATO is currently running a crackdown on sole traders & contractors claiming to be business entities to gain a tax advantage.
Generally, a nanny is an employee if they:
- are paid for time worked
- are not responsible for providing the materials or equipment required to do their job
- must perform the duties of their position
- agree to provide their personal services
- work hours set by an agreement
An Independent Contractor?
A nanny can be paid as a sole trader issuing invoices with an ABN if they:
- are paid for results achieved
- provides all or most of the necessary materials and equipment to complete the work
- are free to delegate work to other entities
- has freedom in the way the work is done
- provides services to the general public and other businesses
- is free to accept or refuse work, and
- are in a position to make a profit or loss.
It’s important to note that work for contractors that provide a service that is labour only are still liable to pay the 9.5% super guarantee. Workcover obligations may also apply in these circumstances and its best to contact your state for clarification.