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Ensuring that your employees are paid correctly and on time is at the heart of of being a responsible employer. However, if your payroll team finds it challenging to manage employee classifications and awards, you must take proactive steps to ensure compliance and avoid penalties.

While it’s easy to underestimate the impact of employee misclassification, it is a serious issue that your business needs to address. By complying with tax and superannuation requirements for each employee classification, you can avoid the risks that come with getting it wrong.

And, as the workforce evolves with more varied contract types and work patterns, classifying employees becomes even more challenging. Outsourcing your payroll can simplify this process, letting you identify errors and inaccuracies, and ensure employees are correctly classified, ultimately reducing the risk of penalties and fines.

The challenge of employee classification

Correctly classifying employees can be a complex task. There are several factors that determine an employee’s classification, including their employment status, work type, and entitlements. Increased complexities due to an evolving workforce and varied contract types further complicate things.

For example, a gig economy worker — someone who earns an income by providing temporary, short-term, or project-based services, often through online platforms or apps — is not typically classified as an employee, but rather as an independent contractor.

If a company hires a gig worker and classifies them as an employee, it can create confusion around payroll and tax obligations. For example, the business may be required to withhold taxes from that person’s pay even though they are not technically an employee.

Other non-traditional work arrangements, such as freelancing, remote work, on-demand work, and job sharing, are becoming increasingly common in today’s workforce. These arrangements — along with others that may emerge in the future — will create further challenges when it comes to properly classifying employees for payroll purposes.

Benefits of outsourcing payroll

You may have heard that outsourcing payroll can help save time and reduce the workload on your internal payroll teams. But did you know that it also benefits for employee classification in payroll?

The top benefits include:

  • Access to specialised knowledge and expertise in employee classification and payroll compliance (they know the difference between an independent contractor and an employee).
  • Assistance with identifying and correcting classification errors or inaccuracies.
  • Ensuring compliance with tax and superannuation obligations for each employee classification.
  • Reducing the risk of penalties, fines, and back taxes related to misclassification.
  • Providing a streamlined process for onboarding and offboarding employees, which includes accurate classification and proper documentation.

These benefits can be highly valuable for businesses with large or diverse workforces, or those that are expanding their operations and need to keep up with changing regulations and compliance requirements.

Employee retention can also be positively impacted by proper employee classification. When employees feel that they are being paid fairly and accurately for the work they do, it can improve job satisfaction and foster an overall sense of value within an organisation. In turn, this can lead to an increase in employee engagement, productivity, and loyalty.

At a time when employers are finding it difficult to retain employees, something as simple, yet important, as getting employee classifications right can be the difference between retaining valuable talent or losing it to competitors.

Classify with confidence: Preparing your payroll for the future

With an ever-evolving workforce featuring diverse contract types and work patterns, employee classification is an ongoing challenge that requires a future-proofed solution. Outsourcing your payroll can simplify this process, identify current errors and inaccuracies, and ensure employees are correctly classified, reducing the risk of penalties and fines. It also frees up your team to focus on your company’s core priorities.

At Affinity Payroll, we have a team of experts who can help you with your payroll needs, are familiar with the latest regulations, and can accurately classify employees based on their job responsibilities and contract terms. We can also identify any misclassifications or errors, helping you to worry less about non-compliance and focus more on value-added tasks.

Don’t let employee classification weigh you down. Contact the Affinity team today.




For over thirty years, Affinity has been a trusted partner for mid-market and enterprise businesses in Australia and New Zealand, empowering them to transform their payroll operations. With a focus on turning payroll from a cost into an asset, we have established ourselves as industry leaders in delivering innovative cloud-based payroll software and exceptional payroll services.