So, you just landed in Australia last week, you have applied for some work with a job agency, and they have strongly suggested you apply for an ABN before starting work with them. Why would you be asked to obtain an ABN, when you should be paid by TFN?
What is an ABN?
ABN stands for Australian Business Number. Every business operating in Australia is required to have one. Self-employed individuals are running a business, so must obtain an ABN and include it on their invoices for work performed. Businesses are required to pay for their own insurance policies for public liability and workers compensation.
What is a TFN?
TFN stands for Tax File Number. Anyone who wants to work in Australia must obtain a TFN. You provide this number to your employer when you start working, and they deduct tax from your income under the PAYG (Pay As You Go) system. Generally, people don’t need to worry about a tax bill at the end of financial year because tax is already taken by their employers. Employees are also covered under their employer’s insurance policies, receive superannuation and have employee protections under the Fair Work Act.
Once you understand the difference between an ABN and a TFN, it is easy to see why unscrupulous employers would prefer to pay you using an arrangement that means:
- your protections and benefits under employment law are reduced
- they don’t have to pay you superannuation
- they don’t have to pay for your workers compensation and public liability insurance
Paying an employee under an ABN instead of TFN is called “sham contracting”. The Fair Work Ombudsman has a checklist if you think you may be a victim of sham contracting
Sham contracting allows businesses to pay workers under the minimum award rate. If you are paid by ABN, you should be paid significantly more than if you were paid by TFN, to account for these unpaid benefits you’re missing out on.
For example:
$35.00 ABN – 10% for insurance ($3.50) – 11.5% for super ($4.02) = $27.48
$35.00 TFN + 11.5% for super ($4.02) = $39.02
The difference can be larger if you miss out on entitlements such as travel and meal allowances.
Please see our related articles below to see how sham contracting impacts your superannuation and workers compensation, as well as a guide on what to look out for to make sure you’re not a victim of wage theft.
More information