Contractors and Employees& What’s the Difference?

Do you know the difference between employee and a contractor? Do you use contractors in your business?

If so, it is essential you are able to determine an employee from a contractor and satisfy the guidelines issued by the Australian Taxation Office (ATO), Office of State Revenue and WorkCover NSW that they are indeed contractors and not employees of your business.

The responsibility for the correct treatment of these workers lies solely with the employer. Failure to correctly determine the correct nature of the work relationship may result in the company being liable for unpaid entitlements under certain employment legislation.

Audits and investigations into the use of contractors by businesses are very common. It is essential that you review the terms under which you use any contractors to ensure that you are complying with all areas of the legislation.

The common definition is that an employee works in your business and is part of your business, whereas a contractor is running their own business; however you need to look at the entire working arrangement.

As a starting point some of the requirements that should be satisfied to ensure you are able to classify a worker as a contractor rather than employee are as follows:-

• there should be a written contract with the contractor outlining the tasks agreed to be performed and these tasks should be based on results;
• the contract should state who is required to perform the work and should be able to be delegated by the contractor to other persons;
• the contract should outline how the contractor is to be remunerated;
• the contractor should bear the risks of not achieving the results;
• the contractor must be using their own tools and equipment; and
• the contractor should be incurring their own costs in relation to vehicles, mobile phones and other incidental business expenses.

The ATO also provides some tools to assist in determining the key differences and outlines six factors that need to be considered which include the ability to subcontract or delegate, basis of payment, equipment, tools and other assets, commercial risks, control over the work and independence.

https://www.ato.gov.au/Business/Employee-or-contractor/

Whether your workers are employees or contractors, we are happy to work with you and point you in the right direction. Contact us today on 02 4304 8888.