Pro Studio Basics

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Pro Studio Basics

21. Employees or Subcontractors

The following advice is specific to Australia.

Are your assistants and stringers employees or sub-contractors? In other words, are you an employer or just a business hiring contractors?

There is a difference.

If you are an employer, you must:

  • Pay wages regularly and on time
  • Withhold tax
  • Pay superannuation
  • Pay WorkCover insurance premiums
  • Do all the payroll paperwork
  • Possibly pay holiday and sick pay, and long service leave
  • Provide a safe work environment.

On the other hand, if you are just a business person hiring independent contractors, you have to:

  • Pay contractors, but you might have up to 30 days
  • No need to withhold tax if an ABN is quoted on their invoice
  • You may still have to pay superannuation
  • You may still have to pay WorkCover insurance premiums
  • There is less paperwork
  • You don’t have an obligation for holiday and sick pay, and long service leave
  • Provide a safe work environment.

What a lot of photographers are probably doing is:

  • Hiring assistants and stringers and asking them to quote an ABN
  • Not withholding taxes
  • Not paying superannuation
  • Not paying WorkCover premiums
  • Believing this is all that’s required.

The problem is that Fair Work is out there looking around and, following some interaction in Queensland recently, it is suggesting that many of the subcontractors and stringers we hire are in fact employees, not contractors.

If this is the case, then photographers could suddenly find themselves liable for back taxes, superannuation, insurance premiums, and of course, penalties.

However, before you panic, let’s look at the situation in a bit more detail and give you some guidance as to what you need to do. Of course, this article can’t replace you obtaining your own professional advice. Instead, it is provided so you can talk to your advisers with the necessary background.

Does Fair Work Apply To You?

From 2010 a number of changes to the workplace (people we hire) came into force. They affect all employers around Australia, except some small businesses (sole traders, partnerships and trusts, but not companies) in Western Australia. However, the issues discussed in this article affect everyone because Fair Work is simply trying to enforce what the tax office has been trying to do for the past 30 years.

Essentially, Fair Work wants to ensure that employees receive a minimum standard of wages and conditions. If you are an employer, you are caught by the legislation. On the other hand, if you hire contractors, you are probably not caught, so there is an incentive not to ‘employ’ people and rather to ‘hire contractors’.

Legal Stuff

It’s difficult to discuss this issue without getting involved with the technicalities. This is because two photographers could be hiring assistants, and in one situation the assistant could be an employee, while in the other the assistant could be a contractor.
The CPA Australia website states, “Employees are engaged under a contract of service, which is characterised by the employer’s right to command and control the work of the employee — it is in effect a master/servant role. The employee is essentially an agent of the employer and is remunerated for the provision of labour.

“Independent contractors are engaged under a contract for service. A contractor agrees to provide a certain end result, however, how they achieve that result is under their control. Payment is usually based on the completion of the task.”
So what does this mean? Let’s look at two common scenarios.

Commercial Photographers Hiring Assistants

In the USA, being a photography assistant can be as much a profession as being a photographer, but in Australia, a photography assistant generally refers to someone who assists the photographer during a shoot. The assistant will do everything from moving lights, packing bags, getting lunches, running errands. In essence, the assistant is remunerated for labour.

In this situation, the assistant is likely to be an employee.

Wedding Photographers Hiring Stringers

Wedding studios often hire photographers to shoot weddings. If the ‘stringer’ provides his or her own cameras, shoots the wedding alone, and is paid to produce a result (provide a number of image files on DVD), then this is likely to be an independent contractor arrangement. The stringer is being paid to produce a result.

However, a wedding photographer who hires an assistant to accompany him or her, and then expects the assistant to carry the camera bag, hold the reflector, run errands and so on, is probably hiring an employee.

When Is An Employee An Independent Contractor?

There can be situations where a photographic assistant has set himself or herself up as a business. Let me explain.
When you are hired as a photographer, the person hiring you is hiring an independent contractor to produce a result, they are not hiring an employee to work eight hours with a camera. When you are hired, you provide your own transport, equipment and you work for a lot of different people.

There is nothing to stop an assistant setting himself or herself up this way. An experienced assistant could provide his or her own transport, equipment and consumables. For instance, the assistant could provide a laptop, card reader and DVDs, providing finished files to the photographer at the end of the day (a result), even though during the day the same assistant might be moving lights and running errands.

So you can see by changing the nature of what is being offered to you, an ‘employee’ could become an ‘independent contractor’, and similarly, an independent contractor can actually be an employee.

More Technical Stuff

The CPA Australia website states, “The main factor that will help determine whether a person is an employee or a contractor is the extent of the control over the work that the employer has. If the employer has the right to control when, how and by whom the work is done, the relationship is usually that of an employee. Whether the employer exercises this control or not is irrelevant.”

Of course, this could also apply to you as the photographer. Photographers are often required to turn up at a particular time and shoot the work personally. However, there are some other tests that can help clarify the position.

You’re more likely to be an independent contractor if:

  • The work can be delegated or subcontracted (unlikely if you hire an assistant)
  • The type of instructions the employer can give about how the work is performed (generally you are very specific in what you want an assistant to do, but not a wedding stringer who is out on his own)
  • How much freedom the worker has about how the task will be performed.(the assistant has very little freedom because he or she is being told by you what to do)

Is the independent contractor running a business? Indications there is a business include:

  • A considerable investment in tools and equipment
  • The possibility of making a profit or loss
  • Payment on completion of the job rather than for a time period worked.

Many people will look at these issues and, to the best of their ability, determine it for themselves. They may even draw up a contract or agreement that states they have an independent contractor relationship. Unfortunately, if a dispute arises, the ATO or a court can still look behind the contract and define what it considers to be the true relationship between the parties.

This is important to understand because, if you employ an assistant as an independent contractor and things turn sour, your assistant could take you to court for not treating him or her as an employee!

More Complications

A couple more points. If your assistant is operating through a company or a trust structure, then the chances are you can treat him or her as an independent contractor. This is because your assistant’s company will be required to pay income tax, superannuation and WorkCover premiums.

However, merely having an ABN is not the same as being a company. An ABN was thought by the ATO to be a solution for the cash economy, but it would appear this hope was ill founded. Anecdotally, the ATO is now making it harder for people to obtain ABNs.

The worst news is that, even if your assistant is an independent contractor, you could still be liable for superannuation and possibly WorkCover premiums anyway.

The superannuation guarantee only requires the contractor to be paid ‘principally’ for their labour, so it would appear that all assistants are caught for SGC (9% Superannuation Guarantee) purposes. WorkCover laws vary from state to state, but some would also consider these contractors to be employees.

What Should You Do?

The ATO has a useful Employee/Contractor decision tool. Visit http://www.ato.gov.au/businesses/content.asp?doc=/content/00095062.htm to use it.

Note that this is the ATO’s view on your arrangement, but it doesn’t necessarily mean that it is right. On the other hand, if you want a life that is free of tax audit stress, then take the ATO’s advice! The administration in taking on an employee is probably less than dealing with the ATO!

Chances are this decision tool will indicate your assistants are employees, whereas stringers who provide their own gear are contractors.

If this is the case, begin employing your assistants.

Practical Issues

What happens if assistants don’t want to be treated as employees? This is a business decision you have to make, but essentially the ATO would see you as breaking the law.

If the ATO decides to assess you, your liabilities would be to pay the tax, superannuation, penalties and interest. The tax could be 46.5% of the gross amount, the superannuation another 9%, so these are not insignificant. You may not be able to recover these amounts from your assistants.

If you do have independent contractors, consider paying SGC superannuation as part of your agreement. Take 9/109ths of the gross payment, excluding GST, and pay it directly into a superannuation fund as directed by them. You cannot escape the SGC rules by saying the contractor paid the super on their own behalf, and it is likely that all assistants and stringers are entitled to SGC.

(The problem with doing this is that your payment on behalf of your independent subcontractor may then prevent him or her claiming other deductions they make for superannuation, but this is an issue to raise with your accountant and, to be short, not your problem.)

Not everyone will agree with this summary of the difference between employees and independent contractors. However, within this article is sufficient information to alert you to the issues and discuss it with your own business advisers.

The information in this article is general in nature and should not replace personal advice given by your own legal and financial advisers.

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