Employee or Contractor – what’s the difference?

It is a common question, one that often leads to confusion - what is the difference between an employee and a contractor?

Very generally, the difference can be seen as:

• An employee is someone who works for another, whether that be the public service or a private business. One of the very important tests is that the employer controls how, where and when the employee does their work, and also pays them a wage.

• An independent contractor is, essentially, someone who is their own boss. They work for themselves.

Unfortunately, it is not always this clear-cut! Problems can occur where businesses incorrectly treat their employees as contractors, often doing so in an attempt to lower their labour costs. This is achieved by not meeting their tax and super obligations and denying workers their employee entitlements. Naturally, there can be severe penalties and charges for doing this.

Some of the factors used to determine if somebody is an employee or a contractor are:

 1)    Is there an ability to subcontract or delegate work?

2)    On what basis is the person being paid - for example, is it for time worked, a wage, or by way of a quote?

3)    Who provides the equipment, tools and other assets the person needs to complete their work?

4)    Who assumes the commercial risk for the work being done?

5)    Who controls the way in which the work is to be done?

6)    Is the worker operating independently from the business or not?

The bottom line is that, as an employer, you must ensure that you are complying with all of your obligations when it comes to making payment to employees within your organisation. This is especially so when it comes to proper payment for work performed, deduction of taxes and payment of superannuation.

Further information is available from the Commonwealth government on business matters , the Australian Taxation Office and the Fair Work Ombudsman .

Unsure if someone is an employee or a contractor? Please call James Burke or Adam Stencel on (08) 8941 6355 or email james@bowden-mccormack.com.au or adam@bowden-mccormack.com.au.