What is the difference between an employee and a contractor?
An employee is a worker who is paid a wage by an employer in exchange for an agreed role or scope of work. This relationship will usually be regulated by a contract of employment and the employee will perform work under the direction of the employer. Importantly, the employer is responsible for payment of the employee’s superannuation entitlements, applicable tax and leave entitlements.
A common form of employment will include an ongoing expectation of work, set hours, the provision of all tools and equipment by the employer and a regular method of payment.
Minimum employee entitlements are set out in the National Employment Standards and employees are governed by the Fair Work Act 2009 and their relevant award or enterprise bargaining agreement.
A contractor is an independent worker who is primarily in control of how and when their work is conducted, and they are responsible for quoting and invoicing for their work. There is usually no expectation on the principal to make payment of superannuation and the contractor does not accrue leave entitlements payable by the employer, they are responsible for and obtain payment in return for the tasks they undertake. A contract may exist between contractor and principal; however, this will focus on the contractual obligations of the parties only.
A contractor will ordinarily be registered for their own ABN, be registered for GST and are responsible for declaring and paying tax to the ATO as well as their own insurance. A Contractor will ordinarily have their own tools and equipment and are engaged for a specific task or project.
The main indicator of the difference between an employee and a contractor is the degree of control the worker has over their work; the more the work is at the instruction of an employer, the more likely the worker is to be an employee. Conversely, a contractor is in control of their hours and how their work is conducted.