Generally, an employee preforms work under the direction and control of their employer on an on-going basis. The employer determines the hours, work location and how the work is done.

Independent contractors run their own business and provide agreed services under a contract for those specific services. They control the hours required to do a task, and has control over the way they work to complete the contracted services.

Here are some key differences between an Employee and a Contractor :

Working Hours

• Unless you are a casual employee, employees have regular and defined working hours. On the other hand, contractors usually have the freedom to decide what hours they work to complete the task unless otherwise specified in their contractor agreement.

Control Over Work

• Employees typically work under the standards and directions their employers set out for them. Conversely, contractors have a high degree of control over how they complete the work.

Commercial and Financial Risk

• Employees face no commercial or financial risk over the work as it is the employer who bears the responsibility. Contractors assume the risk of making and losing money and are responsible for any liability or defects. As such, contractors are generally required to have their own insurance.

Work Expectation

• Employees, including some casuals, can expect regular and systematic work. Contractors are usually hired for specific tasks and may or may not be engaged for further work.

Payment

• Employees receive payment in a routine manner whether that be weekly, fortnightly or monthly. The payment is in exchange for time. In contrast, contractors are paid for completing work which they have quoted. They are paid through invoices and maintain an ABN. The payment is in exchange for achieved results.

Equipment and Tools

• Employees will benefit from their employers providing them tools and equipment, or at the least, an allowance for them. Contractors have the responsibility of supplying their own equipment and tools to complete the work.

Superannuation

• Employees are entitled to superannuation payments (which their employer pays) to their nominated super fund. In most cases, contractors will have to manage their own superannuation payments.

Tax

• Most employees have their tax deducted through arrangements like pay-as-you-go (PAYG). Contractors have to pay GST and make recurring tax payments to the Australian Tax Office.

Leave Entitlements

• Employees have the benefit of leave entitlements (e.g. annual leave or carer’s leave). Casual employees receive a loading instead of these entitlements. In contrast, contractors receive no leave benefits.

Visit the ATO Website to find out whether your worker is an Employee or Contractor for tax and super purposes.