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The difference between a contractor and an employee

Whether you’re an employer or a person who considers themselves self-employed, it’s important to know the difference between what the Australian Taxation Office (ATO) sees as an employee and a contractor to ensure you are meeting your tax and super obligations.

Many people believe that a worker is automatically a contractor if they have specialist skills, you only need them during a busy time and/or they have an Australian Business Number (ABN), but that’s not always the case. The entire working arrangement needs to be considered when determining if a worker is a contractor or an employee.

Here’s an easy-to-follow comparison chart explaining the key differences.

  Employee Contractor
Hours of work Hours generally set by the employer Decides what hours to work to complete a specific task
Degree of control Performs work under the direction and control of the employer on an ongoing basis Has a high level of control in how work is done
Expectation of work Has an ongoing expectation of work Is usually engaged for specific tasks
Risk Bears no financial risk Bears the risk for specific tasks
Superannuation Is entitled to have super contributions paid Is responsible for paying their own super
Tools and equipment Provided by the employer or a tool allowance paid if employee chooses to use their own Is responsible for providing their own tools and equipment
Tax Income tax deducted by the employer Pays their own GST and tax
Method of payment Paid regularly (eg. weekly, fortnightly or monthly) Has an ABN and submits an invoice when the work is completed
Leave Entitled to receive paid leave or loading in lieu of leave (casuals) Has no entitlement to paid leave

 

If you need further assistance, the ATO’s online employee/contractor decision tool can help you determine if someone is a contractor or an employee. Please note, this tool does not consider other obligations such as payroll tax and workers’ compensation requirements.

Read our employing staff section for more useful information on your obligations as an employer or call us on 13 12 49 to use our free small business advisory service.

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