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.
|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.