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Employee vs Contractor

It is really common that, especially when dealing with Tradies, a business will utilise Contractors rather than Employees.  What is the difference?  And what will happen if I don’t get it right?

 

Sometimes businesses take on a contractor for the ease of not having to run a weekly payroll and there are common misconceptions on what is a contractor and what is an employee.  Unfortunately, there is also no easy answer.

 

In basic terms:

An employee

  • works in the business and is integral to that business
  • has rights and entitlements under the Fair Work Act 2009
  • has a reasonable expectation of ongoing work, agreed hours and duties
  • is covered by the employer’s workers compensation insurance
  • is paid superannuation guarantee.

A contractor

  • is actively running and advertising their own business
  • is responsible for their own insurance, equipment, licenses and tax
  • has a high level of independence, discretion and control as to how and when the work is performed, as well as being able to delegate
  • is liable to fix mistakes at their own cost
  • may or may not be paid super depending on the nature of the work engagement.

Factors to Consider

This is not an exhaustive list but some of the main factors to assess.

  • Is the worker engaged to achieve a specific result or are they engaged for their labour?
  • Are they able to delegate their contract to another worker within their own business?
  • How much choice do they have in where, when and how the work is performed?
  • Who is liable to fix damages or mistakes?
  • Is the service integral to the business?
  • Do they advertise services and accept work from other businesses?

The ATO has a tool to help you decide if a worker is an employee or contractor. 

https://www.ato.gov.au/business/employee-or-contractor/

What happens if I get it wrong?

If you incorrectly class a worker as a contractor when they should be an employee, you may be liable for unpaid super, leave, overtime and any allowances.

If you need help in determining your workers status or setting up a payroll system, we can help.  Contact us at info@redlandsaccounting.com.au

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