ATO warns about incorrect contractor classification and NSW Revenue wins on Uber

There are many misconceptions about the distinction between contractors and employees. Significant case law developments in recent years, together with changes to the Fair Work Act, continue to add complexity. This remains an area in which it is essential to have robust procedures and take advice on complex scenarios.

ATO update

The ATO has issued a new summary of the penalties for incorrect treatment of contractors as well as how to report businesses suspected of doing the wrong thing to the ATO.

Penalties include:

• PAYG – failure to withhold penalty equal to the amount that should have been withheld

• SGC – superannuation shortfall, choice liability, interest at 10% and administration fee plus potential additional penalties of up to 200% of the SGC

• Fair Work Act penalties for sham contracting – up to $99,000 per contravention for businesses with fewer than 15 employees and $495,000 for businesses with more than 15 employees

Payroll tax update

Meanwhile in August 2025, Uber lost its appeal to the NSW Supreme Court regarding the application of relevant contract provisions, resulting in $81 million of outstanding payroll tax. These wide-ranging provisions can deem payments to be wages subject to payroll tax unless specific exclusions are met.

In considering whether amounts collected by Uber from riders and remitted to drivers were subject to these rules, the Court held that the payments were for work performed by the drivers in transporting riders, calculated by reference to the driving service. In line with the decisions in Optical Superstore and Thomas & Naaz, the collection of funds on behalf of a deemed employee does not alter the fact that a payment is made.

Consequences

The medical and allied health industry has recently felt the brunt of the payroll tax provisions and many large employers continue to navigate making super shortfall rectifications due to the extended definition of “employee”. It is clear that the reach extends to many areas traditionally regarded as involving “genuine” contractors. It is important to recognise that the exceptions to the relevant contract provisions are limited and an arrangement that is “independent” at common law may still result in deemed employment.

Getting employee classification correct is a fundamental matter when engaging workers. The risks across the tax and employment law spectrum magnify in a way that means having robust policies and procedures is essential. There are distinctions between the various regimes to factor in, as well as nuances based on geography.

To discuss contractor engagement and strategies to address risk, contact trj@andanteconsulting.com.au.