How to determine whether your worker is an employee or independent contractor, and forms for new employees to complete.
Determine your worker’s classification
You must firstly determine whether your worker is an employee or independent contractor.
It’s important to do this as it affects:
- your tax, super and other obligations (such as worker’s compensation insurance)
- your worker’s entitlements.
To classify your workers, you need to consider the whole working relationship. Some key things to remember include:
- An employee works for you in your business, while an independent contractor is running their own business.
- Apprentices, trainees, labourers and trade assistants are always employees, never independent contractors.
- You may still have to pay super for independent contractors if their contract is principally for labour.
- It’s against the law to wrongly treat an employee as an independent contractor, so you need to check that you’ve got it right.
When determining a worker’s classification, you also need to consider other key differences between employees and independent contractors.
Confirm they can work in Australia
You’ll need to confirm that your new worker is legally allowed to work in Australia. Australian citizens, permanent residents and New Zealand citizens are legally allowed to work in Australia.
If you believe your worker is a foreign national (other than a New Zealander), you must confirm they have a visa with permission to work. More information about employing overseas workers is on the Department of Home Affairs website.
Working holiday makers
If you’re hiring someone on a working holiday visa (subclass 417 or 462), you must also register as an employer of working holiday makers. You need to do this before paying them.
Tax and super obligations
When inducting your new employee, you need to ask them to complete the following forms:
This will allow you to work out how much tax to withhold, and how much super to pay them.
Online commencement forms
New employees can complete their online commencement forms by logging in to ATO online services (linked to their myGov account). This is an alternative to your employee completing a Tax file number declaration and Superannuation standard choice form to obtain their details.
Your employee must complete their online commencement forms within 28 days of starting. Once submitted, the information is sent directly to the ATO.
Your employee will need to print out the employee tax details summary and give it to you. You don’t send the printed form to the ATO. Instead, you simply input the information into your payroll software, so they’re set up and ready to be paid.
Tax file number declaration
Your employee’s Tax file number declaration tells you:
- their tax file number (TFN)
- their residency status
- whether they have any government study loan debts
- whether they are claiming the tax-free threshold.
You’ll need these details to work out how much tax to withhold from payments you make to them.
Your employee can complete a Tax file number declaration:
- through Online services
- your employee will need to print the employee tax details summary and return it to you
- you keep the printed copy and don’t send it to the ATO
- on paper by ordering the Tax file number declaration – if you don’t use STP Phase 2-enabled software, you must lodge the Tax file number declaration to us within 14 days after it is signed by your employee or completed by you.
If your employee doesn’t provide you with their TFN or claims a valid exemption, you must withhold at the top rate of tax (plus Medicare).
Standard choice super form
Most employees and some independent contractors are entitled to choose their own super fund for their super guarantee payments.
To enable them to do this, you’ll need to provide them with a Superannuation standard choice form (NAT 13080).
If your new employee doesn’t choose a super fund, you may need to ask the ATO to provide details of their stapled super fund.
If your employee gives you their TFN, you must provide it to their super fund. You need to do this the next time you make a payment for them, or within 14 days of receiving it, whichever is later.
Hiring through a labour firm
As an employer, it’s your responsibility to protect the welfare of your workers. This includes a worker you engage through a labour hire firm.
If your business has a contract with a labour hire firm, then they’re responsible for pay as you go (PAYG) withholding, super guarantee contributions and fringe benefits tax obligations.
See more information on the Fair Work Ombudsman website.
Other support when hiring workers
When hiring workers for the first time, you can also use tools and checklists available at business.gov.au:
Speak to us if you have any questions regarding this article.
Source: ato.gov.au January 2025
Reproduced with the permission of the Australian Tax Office. This article was originally published on https://www.ato.gov.au/businesses-and-organisations/hiring-and-paying-your-workers/engaging-a-worker/hiring-a-new-worker
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