XBert Type: Standard
Accounting Software: Xero, MYOB, QuickBooks Online
Country Restriction: Australia only
Risk Type: Compliance Risk
Business Function: Payroll
Overview
The "Contractor or Employee" XBert looks for sole traders who are paid regularly, like a salary, for contractor, consulting or labour-hire work. When someone is engaged as a contractor but paid on a steady, predictable schedule, the working arrangement may actually be that of an employee. Getting this wrong can expose your business to tax, superannuation and Fair Work obligations you did not realise applied.
What it does
This XBert reviews your supplier bills from the last 12 months and looks for a pattern that resembles regular wages rather than ad-hoc contractor invoices. It examines:
Suppliers whose Australian Business Number (ABN) is registered as an Individual/Sole Trader and is currently active on the Australian Business Register.
Bills coded to genuine contractor, consulting or labour-hire expense accounts.
The dates of those bills, to measure how evenly spaced the payments are over time.
How it works
For each active sole-trader supplier, XBert lines up the bills coded to a contractor-type expense account and measures the number of days between consecutive payments. It works out the average gap and how much each gap varies. The XBert raises an alert when there is more than one payment, and more than one of those gaps falls into a steady, predictable pattern. A regular rhythm like this is the hallmark of a salary, not ad-hoc contractor work.
To keep the alert accurate, it deliberately ignores several things:
Suppliers whose ABN is not registered as an Individual/Sole Trader, and sole-trader ABNs that have been cancelled or are no longer active.
Accounts that merely contain a matching word but are not contractor labour, such as income or revenue accounts (for example "Consulting Income" or "Contract Revenue"), insurance accounts (for example "Subcontractor Insurance"), equipment accounts and laboratory accounts.
Bills that are not authorised or paid, and bills older than 12 months.
Suppliers with only a single bill, or whose payments are irregular and one-off in nature.
It also keeps each contractor expense account separate, so a supplier paid across two different accounts is not wrongly treated as a single regular run of payments.
Example/Use Case
Bob runs a construction company and engages several workers as contractors to keep things flexible. One of them, Jane, is a registered sole trader who submits an invoice every fortnight for labour, each for around $2,400, all coded to "Contractor Expenses". Over 12 months XBert sees these payments arriving at a steady, fortnightly rhythm and raises the alert. Bob reviews the arrangement against the ATO and Fair Work guidance, realises Jane works set hours under his direction much like an employee, and reclassifies her, putting her on payroll with the correct superannuation and tax treatment.
Accounting software
This XBert is compatible with:
Xero
MYOB
QuickBooks Online
Which countries it supports
Australia only.
Processes
This XBert falls under Payroll. To action it:
Confirm the supplier's ABN status and whether they are genuinely registered and operating as a sole trader.
Review the nature of the work and the regularity of the payments highlighted.
Use the ATO and Fair Work guidance to assess whether the arrangement is genuinely a contractor relationship or whether it more closely resembles employment.
If the worker should be an employee, reclassify them, add them to payroll and apply the correct superannuation, tax and leave entitlements.
If the contractor arrangement is correct, no change is needed.
Once you have reviewed or corrected the arrangement, mark the XBert as resolved.
Regularly reviewing contractor arrangements helps ensure compliance with ATO and Fair Work requirements and reduces potential legal and financial risk. For more information, refer to the ATO's guidance on employee or independent contractor.