Employee v Contractor

Employee v Contractor Why does it matter?

The reason this definition is important, has to do with the potential liability for Superannuation, Workers Compensation, Annual Leave and even sick leave. The fact that you engage someone and insist they have their own ABN, does not mean they are a contractor. The tests to see if a person is a contractor are really around the terms and conditions of work, not desire, and we explore these in this article.

Employee v Contractor

The difference

The Australian Tax Office gives guidance on employee v contractor in this article on their website. It examines the following questions related to the real relationship that determines employee v contractor:

Ability to subcontract / delegate
This comes down to whether you have to do the work or whether you can delegate the work or even subcontract. Typically, an employee can’t delegate theeir work.
Basis of payment
An employee normally gets paid for hours, or based on an activity or commission. Generally a contractor will issue a quote and invoice and get paid when the work is finished and after an invoice is issued.
Who pays / provides equipment?
Contractors generally provide their own tools and equipment and don’t get reimbursed. Employees generally have all the tools and equipment provided or reimbursed.
Commercial Risks
A real test of independence – who pays for mistakes? If you are an independent contractor, generally you pay to fix your own mistakes.
Control Over the work
As a contractor, you can chose HOW the work is completed as long as it complies with the required standard. As an employee, you follow reasonable wok requests.
Independence
As a contractor, you have the right to accept or refuse work as you’re independent. As an employee you’re really part of the business and not separate from it.

ATO Decison Making Tool

The Australian Tax Office also provides a handy employee v contractor decison tool to help you work out if you are an employee or contractor in relation to tax and Superannuation purposes.

Common Myths

The ATO also outlines some common myths that are worth highlighting. :

  • A requirement for an ABN does not mean you’re a contractor
  • Length of job is not a factor in deciding if you are a contractor
  • The business labelling you as a contractor is not relevant
  • Your desire to be a contractor is not relevant
  • Having a contract specifying you as a contractor makes no difference
Whether you are a contractor or not is determned by your working conditions, regardless of your intentions or that of the business you are dealing with.


Next time you wonder what you can do to make a difference in your business, take action. Be thoughtful, be deliberate, be successful. Contact us to find out how.

Posted in Accounting, ATO, General Business, Planning, Taxation, Uncategorized Tagged with: ,
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