Employee or subcontractor -Be prepared for an external audit

Why are audits undertaken?

Audits may be undertaken by various government bodies including the ATO, the Department of Industrial Relations and Workcover in order to examine:

• Workers compensation 
• Payroll Tax 
• Superannuation
• Portable long service leave for building and construction (through the Long Service Payments Corporation). 

Audits can often be stressful and time consuming. In order to help minimise the disruption to your business you will need to ensure that you are prepared for the audit – this means having the relevant documentation available for the auditor to consider. 

Non-compliance typically occurs when businesses fail to register for all relevant taxes, fail to keep proper records and fail to lodge forms on time or report correct information. 
You should implement an appropriate document retention policy and administrative filing to enable you to retrieve records efficiently during an audit. 
The information you are required to provide to the auditor will depend on the reason for the audit.

Documents and information to provide to an auditor 

Below is a list of documents and information that are commonly requested when an auditor is determining whether a person is a contractor or an employee/worker. 
Providing a range of information to the auditor will allow the auditor to make a more informed determination rather than attempting to make a determination based on limited facts.

•  Details of the contractor’s Pty Ltd company, partnership and/or registered business name. 
• The contractor’s Australian Business Number (ABN) and whether the contractor is registered for GST. 
• A copy of the contractor’s license. 
• Any written contract/quote that is ‘results based’ and invoices for payment in accordance with the contract or quote. This will show that the contractor works for a fixed fee to achieve a fixed result and is not engaged or paid on an hourly, daily or piecemeal basis.
• Evidence that the trade contractor provided his/her own plant and equipment and did not rely upon someone else to provide necessary equipment. You can provide an outline of the tools that the contractor provided and refer to invoices to show that the contractor supplied materials when carrying out work. You may also be able to provide evidence that the contractor supplied and wore his or her own uniforms and/or had their own stationery and business cards. This type of information will help to show that the contractor has made a capital contribution to their business. 
• Evidence that the contractor engaged others to assist with the works under the contract. This will show that the contractor had the authority to employ/engage suitable competent personnel or trades, especially if they are unable to undertake the contract themselves. You may be able to use a completed and signed Trade Contractor Statement to evidence this. 
• Evidence that the trade contractor carried its own risk and at the time of engagement and had workers compensation (where applicable), public liability and sickness and accident insurances. You should request and retain a copy of the certificate of currency for these insurances at the time of contracting. 
• Evidence that the trade contractor bears the risk for defective work. This may be a term of a written contract (the HIA Period and Project Trade Contracts include such a term) or it may be evidence that the contractor has in fact repaired defective works. 
• Evidence that the contractor worked for a number of different people and advertised its services to the public at large – this could be evidenced by a copy of the contractor’s advertisement in a directory or local newspaper. You can also refer to the contractor’s own stationery and business cards as further evidence of advertising material. 
• Outline that the contractor had autonomy so as to do the job within contract guidelines and that the principal did not instruct the contractor how to proceed with and carry out the works. 
• Documents showing that the trade contractor is a member of an industry association to demonstrate their professional standing as a business to the community at large.

To find out more, contact HIA's Workplace Services team

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