Understanding the difference between employees and contractors

When running a business, it’s important to understand the difference between employees and contractors for the purposes of tax, superannuation and insurances. Do you?

While it may seem straightforward, some contractors are deemed to be employees which means there will be additional superannuation and insurance obligations. The highly experienced team at Valorium Advisors are here to help with tailored financial advice you can rely on. Contact us at any time for advice you can put into action that will benefit your business.

In the meantime, the summary below will help you to understand the difference between employees and contractors.

Employee

Ability to subcontract/delegate: the worker can’t subcontract/delegate the work i.e. they can’t pay someone else to complete all or part of the job

Basis of payment: the worker is paid either

For the time worked
A price per item or activity
A commission

Equipment, tools and other assets:

Your business provides all or most of the equipment, tools and other assets required to complete the work, or
The worker provides all or most of the equipment, tools and other assets required to complete the work, but your business provides them with an allowance or reimburses them for the costs

Commercial risks: the worker takes no commercial risks. Your business is legally responsible for the work done by the worker and liable for the cost of rectifying any defect in the work

Control over the work: the business has the right to direct the way in which the worker does their job

Independence: the worker is not operating independently of your business. They work within it and are considered part of your business

Contractor

Ability to subcontract/delegate: the worker can subcontract/delegate the work i.e. they can pay someone else to do all or part of the job

Basis of payment: the worker is paid for a result achieved based on the quote they provided.

A quote can be calculated using hourly rates or price per item to determine the total cost of the work.

Equipment, tools and other assets:

The worker provides all or most of the equipment, tools and other assets required to complete the work
The worker does not receive an allowance or reimbursement for the cost of their equipment, tools and other assets

Commercial risks: The worker takes the commercial risks, with the worker being legally responsible for their work and liable for the cost of rectifying any defect in the work

Control over the work: the worker has freedom in the way the work is done, subject to the specific terms in any contract or agreement

Independence: the worker is operating their own business independently of your business. The worker performs the services as specified in their contract or agreement and is free to accept or refuse additional work

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