The Blog

Paying Through a Tax File Number vs Australian Business Number

Tags: Brand Ambassador Blog

Date: October 5, 2021

Black Diamond - Paying through TFN or ABN

Tags: Brand Ambassador Blog

Date: October 5, 2021

Why do some promo agencies pay their staff through a Tax File Number and others pay through an Australian Business Number?

 

The short answer is the agencies paying staff through an Australian Business Number may be breaking the law.

They’re either doing it on purpose because it makes them more money or they don’t know that what they are doing may be illegal.

Let’s get into the details.

Paying a worker through a Tax File Number (TFN) means they are an employee. Paying a worker through an Australian Business Number (ABN) means they are a contractor.

A contractor and an employee are two very different things in the eyes of the law.

 

What is an employee?

An employee works within a business and is part of that business.

 

What is a contractor?

A contractor is running their own business.

The Australian Taxation Office (ATO) is clear about the difference between the two. The ATO outlines six factors that, taken together, determine whether a worker is an employee or contractor for tax and super purposes.[i]

Let’s go through them.

Or skip to the bottom of the article to see the impact on super, tax and insurances.

1. Ability to subcontract-delegate – Can the worker subcontract or delegate the work?

If you get booked for a shift with an agency and don’t want to/can’t work that shift, is it ok for you to find someone to complete the shift on your behalf and the agency is 100% ok with it?

Answering yes would imply a contracting arrangement, answering no would imply an employee arrangement.

For the purposes of the article, I will use 2 x examples to try and show a clear difference between the two in our industry. On one hand, we have a worker who is a children’s face painter, let’s call her Amy, legally paid as a contractor through an ABN. On the other, we have a brand ambassador, called Sam, paid as an employee through TFN.

The kids face painter in this example knows a few other face painters and so when she wants the long weekend off, although she has already been booked, she simple rings around her contacts finds someone who can do the job on her behalf and books them in for it. She then tells the agency and this new person goes and works on her behalf. The agency is cool with it as they understand they booked a contractor for the job and Amy doesn’t have to do the job herself.

Brand Ambassador Sam is in the same situation and he has contacts in the industry as well so when he wants the long weekend off, he tells the agency that he has found someone to cover his shift. However, this time the agency is annoyed because they booked Sam as the worker, not his friend and they have confirmed he will be attending the job with their client. The fact that the agency is not ok with Sam delegating the work would imply it’s an employee relationship.

2. Basis of payment – Is the worker paid for the time worked or for a particular result?

If you’re paid hourly for your time it would lean toward an employee relationship, if you’re paid a flat rate for a result it leans towards a contracting relationship.

In the example of Amy, the face painter the agency booked her for a 3-hour gig for $150. If it takes Amy longer to set up or pack down, she does not get to invoice additional time for her work as she is being paid for the job not for her time, even though her time required does form part of the job.

In the example of Sam the Brand Ambassador, he is booked 3 hours at a rate of $28/hr. At his shift, pack up takes longer so he ends up doing 3.5 hours. Sam is not being paid for a result but rather his time so the agency pays him for 3.5 hours. This implies an employee relationship.

3. Equipment/Tools/Other assets – Is the worker required to provide their own tools for work?

This is a tricky one to answer in the world of promo as there are generally not really any tools required to complete the job. However, if there are any ‘tools’ that you require to complete the work, if the agency reimburses you for it, it would imply an employee relationship. If you are expected to buy things to use at the shift and not be reimbursed, it would imply a contracting relationship.

In the example of Amy the face painter, she is required to provide her own paints, sponges, glitters, brushes etc in order to perform her work. She does not get reimbursed for the cost of these. This implies a contracting relationship.

Sam as a brand ambassador doing an event bump in needs a high vis vest so the agency either provides it for him or reimburses him to purchase one. He is also given a branded shirt to wear as his uniform. These scenarios imply an employee relationship.

4. Commercial Risks – Is the worker legally responsible for the work they are providing?

Does the worker bear the legal risk for the work? Is the worker responsible for defects in their work and either has to re-complete the job to standard or pay to have it rectified?

In the example of Sam the brand ambassador, he was booked to help with some back of house show bag packing and he was required to pack 1000 show bags. He leaves his shift only packing 800 because he didn’t see the other boxes. It was his mistake and the agency sends him back to finish the job the next day and they pay him for his time to do so. This implies an employee relationship.

5. Control over the work – Does the worker have freedom over the way the work is completed?

Does the agency direct what the work is, how to complete the work and where and when the work is to be completed? If yes, this would imply an employee arrangement.

In the example of Amy the face painter, when she is booked the agency says the theme of the event is animals so we just need you to paint anything as long as it’s within the animal theme. Your own style and technique are entirely up to you. This implies a contracting relationship.

If the agency was to say, here are some stencils, you are only to paint these types of animals and they need to look exactly like this and we will provide training on exactly how we want you to paint, this would imply an employee relationship.

6. Independence – Is the worker operating as part of the business or independently?

Is the worker working independently of the agency and is free to accept or refuse additional work? If yes, it would imply a contracting arrangement, if no it would imply an employee arrangement.

Is Amy allowed to accept other face-painting work from other agencies and also refuse certain work? If so this implies a contracting relationship.

To summarise the above.

The 6 factors above all need to be taken into consideration when working out if it’s an employee or contracting relationship. Sometimes it’s not black and white. On some of the points, it might imply a contracting relationship and on others, it might imply an employee relationship and there are nuances to each.

The ATO has a simple tool to help you work out which one you are by answering some simple questions (you’re doing it from the point of view of the agency). You can try it here.

You can also call the ATO to get help with your particular situation by calling them on 13 28 61.

 

So what’s the issue with agencies paying their staff as contractors when they’re actually employees?

“It’s against the law for a business to incorrectly treat their employees as contractors. Businesses that do this are illegally lowering their labour costs by:

  • not meeting their tax and super obligations
  • denying workers their employee entitlements.

Businesses that behave this way can often undercut their competitors and obtain an unfair competitive advantage.”[ii]

 

What does it mean in regards to Tax?

If you are being paid as a contractor through an ABN the agency is not withholding any tax from your pay. This means when you come to do your tax return at the end of the financial year you will need to pay tax on this amount.

This means you should be keeping a very clear record of all your earnings and all your expenses to report on your tax return.

If you’re being paid as an employee through a Tax File Number, your agency is withholding tax from your pay and paying it to the ATO so that when you do your tax return, tax has already been paid on your behalf for any of your earnings with that agency. You don’t need to keep track of how much you earn or your expense because this is all kept within your payslips and then reported directly to the ATO at the end of the financial year ready for you to simply log in to your MyGov account and get your Income Statement to submit with your tax return.

This is why when you are paid through an ABN you should be on a higher rate of pay to take into account the additional time it takes you to do your own financials.

 

What does it mean in regards to Super?

Superannuation is money that employers are required to pay into your super fund on your behalf for any eligible work you do for them. If you find super a bit confusing, check out some more info here.

The current laws around superannuation state an employer is required to pay 10% on top of ordinary earnings for any worker that is over 18 and earns more than $450 in a calendar month (although this rule is set to change from 1 July 2022)[iii]

For example, if your rate of pay is $27.91/hr and from 1st September to 30th September you worked 17 hours for the one agency, you would’ve earned $474.47 for that calendar month. This means the agency would need to pay you 10% on top of your super fund. This would be $47.44 on top of the $474.47 that you already earned.

Be aware of agencies that advertise a job saying that the rate of pay is $33/hr including super. This can make it looks like it’s a higher rate of pay than other jobs.

You can do the math knowing that super is 10%. This means the hourly rate of the job is $30/hr + $3/hr super. However, if you don’t earn $450 in that calendar month for that agency they will not pay you the $3/hr super. So technically this job is only $30/hr, not $33/hr.

 

What does it mean in regards to Work Insurance?

When you work as a contractor through an ABN, given you are your own business, it is your responsibility to take out appropriate insurance to cover you in the event of an injury at work. If you are being paid through an ABN your agency should be asking you for a copy of your insurance certificate of currency to prove you have your own insurance. If you are working through an ABN and do not have your own insurance and you injure yourself, you will not be covered by your agency’s insurance.

If you are being paid as an employee through a Tax File Number, your agency is legally required to have a Work Cover policy for you so you will be looked after in the event of a work injury.

This is why when you work under an ABN you should be on a higher rate of pay because you need to take into account the cost to insure yourself.

 

Let’s work out some numbers.

$30/hr paid through TFN is not the same as $30/hr paid through ABN.

Through TFN, $30/hr is:

$30/hr pay rate, minus tax (the rate of tax withheld depends on how you fill out your Tax File Declaration Form).

If you earn over $450 in the calendar month for that agency they will also pay you 10% of $30/hr on top.

 

On the other hand, being paid through ABN, $30/hr needs to have some costs deducted to make it the same value as working through TFN.

  • 10% for super
  • 5% for your insurance (this is a rough amount)
  • 5% for managing your own tax affairs (this is a rough amount)

In the example above, $30/hr through ABN is actually only $25/hr because you have to deduct:

  • $2.5/hr super
  • $1.25/hr for your insurance
  • $1.25/hr to cover the cost of managing your own tax affairs

This is why contractors should be paid more than employees because they have additional costs to cover that employees don’t.

 

Can an agency ask you if you want to be paid through TFN or ABN?

No. The law is clear, you are one or the other you can’t be both at the same time and you can’t choose which one you are. The law decides the arrangement.

 

What if I signed a contract stating I am a contractor, when it looks like I’m actually not?

This is illegal and it’s called Sham Contracting. There’s a whole section on the Fair Work website about this and you can read about it here.

 

Want to report an agency that is not paying you correctly?

You can provide a tip-off about a business that is incorrectly treating an employee as a contractor by contacting the ATO:

  • completing the tip-off form. This form is also available in the Contact us section of the ATO app
  • phoning 1800 060 062.

Your information is treated confidentially and tip-offs can be made without giving your name if you don’t want to.[iv]

You can also report sham contracting to FairWork anonymously here.

 

Do you want more information?

To understand your rights as an employee use the below sites:

Australian Taxation Office – https://www.ato.gov.au/

Fair Work Ombudsman – https://www.fairwork.gov.au/

 

Who wrote this article?

I’m Tamara Haddow, Founder and Managing Director of Black Diamond Agency. I have been in the promo industry for 16 years and have been running the agency for 12 of those years. I started Black Diamond Agency for a few reasons and one of the main ones was to treat brand ambassadors better than I got treated when I worked as a BA.

I have a Bachelor of Social Science (Criminal Justice) and a Master of Commerce (specialising in Business Law & Financial Planning) and while these degrees don’t make me a lawyer, I absolutely know about employee rights in our industry and I want brand ambassadors to be armed with this knowledge so you stop getting ripped off by employers doing the wrong thing. But please note that the above commentary is general in nature and you should contact your accountant/lawyer/FairWork if you need advice on your specific circumstances.

I’m completely contactable by anyone in the promo industry that has questions about the information above or wants some more information.

Don’t be a stranger – tamara.haddow@blackdiamondagency.com

Related Tag: Promo Staff Sydney


[i] https://www.ato.gov.au/business/employee-or-contractor/difference-between-employees-and-contractors/

[ii] https://www.ato.gov.au/Business/Employee-or-contractor/Employees-treated-as-contractors/

[iii] https://www.ato.gov.au/General/New-legislation/In-detail/Super/Removing-the-$450-per-month-threshold-for-superannuation-guarantee-eligibility/

[iv] https://www.ato.gov.au/Business/Employee-or-contractor/Employees-treated-as-contractors/

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