The implications of misclassifying a worker
The implications of misclassifying a worker go well beyond industrial relations.
If a business misclassifies an employee, it impacts on superannuation guarantee (SG), PAYG withholding, workers compensation and payroll tax. These entitlements will often need to be met even if the misclassification was a genuine mistake.
For SG obligations, there is no real time limit on the recovery of outstanding obligations.
However, the ATO will generally only go back 5 years unless the individual employee can prove an entitlement beyond this point. Remember that employers that fail to make their superannuation guarantee payments on time don’t just pay the outstanding superannuation but are subject to the SG charge (SGC) and lodge a Superannuation Guarantee Statement. SGC is made up of:
- The employee’s superannuation guarantee shortfall amount;
- Interest of 10% per annum; and
- An administration fee of $20 for each employee with a shortfall per quarter.
Unlike normal superannuation guarantee contributions, SGC amounts are not deductible to the employer, even when the liability has been satisfied.
Getting it wrong can be a very costly exercise particularly if the error is evident over a number of years.