Employee or Contractor?

Business owners need to think carefully about their relationship with new hires to determine if the employees will be brought on to work as an employee or contractor. It can be difficult to understand the difference between employee and contractor as numerous myths and misunderstandings exist as to their exact nature, but it is vital for businesses owners to know what these terms mean. Read on to learn more about employee or contractor classifications to ensure that your business understands its obligations and duties to both types of workers.

Need advice specific to your business? Taggart & Partners is here for you. Reach out to us by contacting us on (07) 3391 1188, emailing enquiries@taggartandpartners.com.au, or getting in touch online.

What Is the Difference Between Employee and Contractor?

Many factors determine who is an employee or contractor but a simple rule is, the relationship between the parties establishes whether a person is an employee or contractor. Contractors manage their own business and offer services for sale while employees work within the business.


There are many names for contractors – independent contractors, sub-contractors, etc…, regardless of the terminology they are covered by the same legal obligations and responsibilities. As a business owner, you will be hiring a contractor when the following conditions exist.

You, the business owner, have the intention of creating a contractor relationship which may be illustrated by giving an Australian business number and formalising a contractor agreement.

Contractors can lawfully assign work or services to be performed by others. Additionally, they control how the work is carried out, when it gets done, and the location. They bear complete responsibility for whether profit is made or not. Generally, they have their own insurance scheme as they are responsible for their wellbeing. They are also entirely responsible for all leave they decide to take.

The tools and equipment used by contractors belong to them, however, both parties may negotiate to create alternate conditions. Contractors are often hired to perform a specific task and upon its completion the relationship between parties ends. They pay their own taxes; Goods and Services Tax to the Australian Taxation Office as well as their own superannuation (though there are exceptions).


Employees are persons hired to work within and as part of your business, which establishes an employment relationship, and this relationship can be illustrated by when a tax file number is provided and with the signing of an employment contract.

Employees are obligated to finish the work themselves with the work being stipulated and managed by an employer. The location, process, and time on task of the work are all determined by the employer with tools and equipment needed for the work being provided by them as well. The employee has no financial risk involved with the work and will work within a standard set of hours.

Taxes are deducted by the employer and they make superannuation contributions into a fund selected by an employee. Employees can expect ongoing work and are entitled to various forms of paid leave (annual paid leave, long service leave, etc…).

Choosing an Employee or Contractor

As a business owner, you need to determine which relationship serves your organisation best and hire accordingly. Answering the following questions can help you make your choice.

  • How much control do you want over completing the project?
  • What sort of payment and leave options do you want to be responsible for?
  • Are you able to provide all the tools and equipment needed to finish the job?

Make sure you understand the difference between employee and contractor otherwise it may damage your reputation and create the potential for legal action. For help with these sorts of management decisions, business growth ideas, and tax advice contact Taggart & Partners business advisory services to learn more about how we can assist you.

Looking to Strengthen Your Business?

Taggart & Partners are business accountants focused on helping small and medium businesses grow. Find out how we can help your business today by calling (07) 3391 1188, e-mailing enquiries@taggartandpartners.com.au or contacting us online.

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