The Australian Taxation Office (ATO) is cautioning businesses that incorrectly treat employees as independent contractors. Doing so may result in significant penalties and charges, including:

      PAYG withholding penalties for failing to deduct tax from employee payments and remit it to the ATO.

      Superannuation Guarantee Charge (SGC), which can exceed the amount of superannuation that would have been payable had the worker been correctly classified. The SGC includes the super guarantee shortfall, nominal interest, and an administration fee.

      Additional superannuation penalties, including a Part 7 penalty of up to 200% of the SGC under the Superannuation Guarantee (Administration) Act 1992.

Businesses engaging in sham contracting may also breach the Fair Work Act 2009. Courts can impose penalties on any business or individual who incorrectly represents an employee as an independent contractor.

For further guidance, tax agents and businesses can refer to the ATO’s resource “Employee or Independent Contractor” (QC 33182) available on the ATO website.

Please contact us directly if you need any help with this.

(Source: Information extract from The NTAA's October 2025 Tax Advisers' Voice)