ATO compliance approach to classifying workers as employees or independent contractor

Article published on: 7-12-2023

The ATO have released Practical Compliance Guideline PCG 2023/2, which clarifies when ATO compliance resources will be applied to investigate and test whether a worker’s classification as an employee or a contractor is correct. This is an important distinction for superannuation and tax purposes.

Whether a worker is classified as an employee or contractor has implications for the engaging entity (‘employer’) and worker, such as PAYG withholding and Superannuation Guarantee (SG) obligations.

The ATO may review an arrangement proactively based on information and risk factors known to the ATO or because of an unpaid superannuation query received from a worker. The ATO may proceed with the review if the arrangement meets certain criterion as detailed in PCG 2023/2. 

Advisers are reminded that it is the substance of a contractual arrangement that will dictate a worker's classification, rather than the labels used in it.

For common indicators to assist with correctly classifying a worker as either an employee or contractor, please also see the ATO’s Difference between employees and contractors page. For more information on the relevance of this distinction for SG purposes, see our Guide to SG.