Contractors Vs Employees


This topic is one of great confusion to many small business owners.

They engage with a contractor. The contractor provides them with a valid invoice, maybe even registered for GST. So what’s th problem?

In many cases, there is no problem. Sometimes though the ATO may deem the people you treat as ‘contractors’ for accounting purposes, as ’employees’ for other purposes (mainly superannuation, PAYGW and workers compensation).

The ATO assess the categorising of contractors Vs Employees on a case by case basis. The type of things that the ATO look for when determining whether a contractor is truely a contractor include:

1) whether the contractor has other ‘customers’ apart from you and is genuinely running a business

2) whether the contractor works regular, reoccurring hours each day/week

3) whether the contractor hired for labour hire only, or if they provide their own tools of trade

4) whether the contractor is given instruction or if they are in charge of their own schedule (I.e. Paid when to produce an agreed outcome, however the go about achieving it)

As always, the outcome of the contractor Vs employee is totally subjective.

The ATO have released a division tool to assist businesses in determining whether they are engaging with an employee or contractor. The link to that tool is:

If you have any questions on this, contact The Accounting Division!

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