It is important to know the differences between an employee and a contractor (also called an independent contractor or sub-contractor) as this will affect your responsibilities, such as paying superannuation contributions.
A worker isn’t automatically a contractor just because they have specialist skills or you only need them during a busy time. You need to consider the whole working arrangement. The easiest way to determine someone’s status is to use the Australian Tax Office’s (ATO) employee/contractor decision tool.
TIP: Providing you give accurate responses you can rely on the tool’s results and will not be penalised if a future review by the ATO shows that you have not met your pay as you go obligations. Make sure you keep a copy of the results for your records.
In simple terms, employees work in your business and are part of your business, while contractors run their own business and provide services to your business. Other differences are outlined below:
|
Employees |
Contractors |
|
You are in control of the work they perform |
In control of when and how they work |
|
Are recognised as part of your business and usually work on a regular and ongoing basis |
Can accept and perform work for other people while engaged by your business |
|
Paid according to relevant award or contract of employment |
Paid based on invoices and results achieved |
|
Supplied with your materials and equipment to undertake work |
Supply their own materials and equipment to undertake work |
|
You pay their tax, superannuation and workers’ compensation |
Responsible for their own tax and superannuation |
|
Represent your business |
Represent their own business |
TIP: A worker with an ABN is not automatically a contractor.
Contractors may also be entitled to workers' compensation if they meet the criteria of a worker as defined in the Workers' Compensation and Injury Management Act 1981.
TIP: Just because a person is described as self-employed or has an ABN may not exempt you from any liability for work-related injuries.
More information
- Check out the ATO’s short video Employer or contractor – How to get it right
- Understand your tax obligations for employees and contractors
- Find out whether you need to obtain workers’ compensation insurance for contractors
