Employees vs Contractors – What’s the difference and what does it mean to me as an employer?
It’s important for both employers and workers to know the difference between an employee and a contractor.
Differences between employees and contractors
There are a number of areas to consider when determining whether your worker is an employee or a contractor.
Employees are usually:
- given ongoing work and hours
- paid superannuation by their employer
- entitled to minimum wages and paid regularly
- entitled to paid leave if they are permanent employees
- not responsible for financial risk (for example, supplier invoices).
Contractors are self-employed and provide a service to a business. They usually:
- negotiate how much they are paid for the work they carry out
- carry the risk of making a profit or loss
- pay their own insurance, superannuation and tax, including GST
- contract themselves to work for a set time or task and decide what hours they work
- invoice for their work or get paid at the end of the contract or project
- decide whether to employ someone else to do the work (also called a subcontractor)
- don’t get paid leave.
It’s important to consider each situation, as there is no single definition of a contractor. For example, your worker may be considered a contractor for taxation purposes, but an employee for other purposes.
Disagreements on whether you or your worker is an employee or contractor
If there is a disagreement, the courts in each state or territory can decide whether an individual is a contractor or employee.
You also need to remember that it’s illegal to fire, or threaten to fire, an employee if they don’t agree to become a contractor
If you would like to find out more of whether someone is a contractor or employee, the links below will provide you with some handy tools:
Try the Independent contractors decision tool to see if your worker is a contractor or employee based on what the courts consider when determining a hirer/worker relationship.
Use the Employee/contractor decision tool on the Australian Taxation Office website to find out if your worker is an employee or contractor for taxation purposes.
Read the Contractors and employees – what’s the difference fact sheet on the Fair Work Ombudsman website.
See the Independent contractors topic for more information on contractors.