Employee Vs Contractor: Do I really need an ABN?

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“My employer says I need an ABN, but do I really need one?”

Not everyone needs an Australian Business Number (ABN).

In many cases, employees in irregular or casual jobs (such as performers, musicians, some consultants and labourers) are asked to get an ABN by employers when they are not eligible for one.

The following things mean you’re entitled to an ABN:

  1. Carrying on or starting an enterprise in Australia. Or making supplies connected with Australia’s indirect tax zone.
  2. A Corporations Act company.

Noticeably missing from the above list is “because my employer said I have to have one”.

The ABR are now cracking down on holders of ABN’s who are being deemed ineligible.

This is because many people have been told (incorrectly) by their employers that they “need an ABN” in order to do the job, in an attempt to treat them as independent contractors.

The reason for this? As a contractor, you can be paid less and miss out on superannuation, and paid leave entitlements that you may be eligible for as an employee.

How do I become eligible for an ABN?

If you do want to legitimately carry out work as a sole trader with an ABN, you’ll be required to do many (if not all) of these things:

  • Be genuinely running your own business.
  • Pay your own income tax and GST directly to the ATO.
  • Source your own clients (e.g. through advertising).
  • Delegate work to others if you choose without approval from any employers or managers.
  • Be responsible for quoting your work, including setting or negotiating your own prices.
  • Invoicing for work.
  • Have a separate business bank account.
  • Pay for your own business insurance (e.g. public liability).

If these do not apply to you, then you’re an employee, not a sole trader, and you are not eligible for an ABN!

How do I know if I’m an employee or a contractor?

You’re not entitled to an ABN for work that you carry out as an employee, even if you or your employer calls it “contracting”. An employer also can’t ask you to get an ABN as a condition of employment.

A genuine contractor is running a business, which means they:

  • pay their own income tax and GST directly to the ATO
  • source their own clients by, for example, advertising their products or services
  • are able to delegate work to others if they choose without approval from an ‘employer’
  • quote for work, including setting or negotiating their own prices
  • invoice for work
  • maintain a business bank account separate from their own personal account
  • pay for their own business insurance such as public liability

If you believe you have been incorrectly deemed a “contractor” and need advice on how to raise or resolve this issue with your employer, we recommend you look at the information and resources provided on the Fair Work website, and contact the Fair Work Ombudsman for assistance.

Employer Responsibilities:

If you operate a business and engage a worker, you’re responsible for determining whether a worker is an employee or contractor. If you employ workers incorrectly under an ABN you can be penalised.

The Australian Business Register (ABR) identifies and cancels ABNs where there is no entitlement. They are conducting ABN entitlement reviews, particularly in industries where there are high levels of misuse.

You should always cancel your ABN if your business has been sold, has closed down or is no longer operating in Australia. If you want to restart your business in the future, it’s easy to get your ABN back.

You can find more information on the ABR website.

If you’re looking for professional advice or assistance with managing your employer obligations, payroll or employment contracts, get in touch with us.