Home   >   Publications   >   Employee or Contractor?

Employee or Contractor?

Employee or Contractor

An issue which often arises for businesses is whether a worker is an employee or a contractor. How do you determine one from the other?  Does it even matter?

This distinction does matter as it impacts on who is responsible for certain issues, such as PAYG withholding tax, superannuation and workers compensation.

How do you distinguish?

To determine the status of a worker, you need to work out the true nature of the relationship between the worker and the party requiring their services.  It is a relationship of employer and employee, or principal and contractor?

Often a worker will give an ABN and provide an invoice for services, which gives the impression that the worker is a contractor.  However, this is not always the case.  Below are some factors which help determine employees from contractors.

Employees

Generally , a worker is an employee if they:

  •          Are paid for time worked
  •          Are not responsible for providing the materials or equipment required to do their job
  •          Must perform the duties of their position
  •          Agree to provide their personal services
  •          Work hours set by an agreement

Contractors

An independent contractor is an entity (e.g. an individual or company) that agrees to produce a designated result for an agreed price.  In most cases an independent contractor:

  •          Is paid for results achieved
  •          Is free to delegate work to other entities
  •          Has freedom in the way the work is done
  •          Is free to accept or refuse work

In some situations it is clear who is an employee and who is a contractor. However, there are often cases in which the lines are blurred making it more difficult to determine.  The above lists are not exhaustive and no one factor is conclusive. It is a matter of assessing all facts to determine the correct nature of a worker.

The characterisation of a worker affects a range of issues, as outlined below.

PAYG Withholding Tax

Employers are responsible for deducing income tax and superannuation from the wages of their employees.

In general, contractors are responsible for paying their own income tax if they have provided an ABN to the employer.

Superannuation

Employers must pay superannuation contributions for their employees to a fund designated by the employee.

Executive Lawyers will be responsible for paying superannuation for contractors where a contractor, who is a natural person, contracts under a contract that is wholly or principally for his or her labour. This is even if the contractor quotes an ABN. Generally, a contract is principally for labour if more than half of the value of the contract is for the person’s labour, which may include physical labour, mental effort or artistic effort.

Workers Compensation (NSW)

Under existing NSW law, employers must have a workers compensation policy to cover their workers. A ‘worker’ is any person who has entered into, or who works under, a contract of service or apprenticeship with an employer. This means that some contractors are considered workers for workers compensation purposes, in which case, employers need to have workers compensation policies which cover their contractors, as well as their employees.

Summary

Employers have different responsibilities depending on whether a worker is a contractor or an employee.  It is important for businesses to make this distinction so they can figure out, and comply with, their legal responsibilities in relation to payment of taxes, superannuation and insurances.

For more information or assistance with characterising a worker, contact us

eBooks

SellPH

Please fill your Email Address

×
Buying a Pharmacy Information card

Please fill your Email Address

×
Download free ebook-Guide To Estate Planning

Please fill your Email Address

×
Free Download-Going To Court, The Family Law Jurisdiction

Please fill your Email Address

×
Free ebook-Dividing Up Your Property

Please fill your Email Address

×

TESTIMONIAL

  • “The team at CLL has been Volvo Group’s lawyers for many years. They advise on all aspects of our business including Dealer Agreements, supplier agreements, tenders, litigation and property transactions. Their advice consistently highlights their intrinsic understanding of our business issues and their lawyers are always available to meet the needs of the business. CLL is an integral part of our operation”

    Ajit Singh, Director
  • We have no hesitation in endorsing Clayton’s Family Law team.

    Outcomes for our clients have been excellent and the sensitive and mature way in which the firm has assisted us to resolve issues has been a feature of the relationship.

    Where small businesses involve two spouses working together re-configuring businesses after a marital breakdown can be extremely difficult. The team at CLL have the expertise and energy to work with industry experts like ourselves to achieve sensible and workable outcomes.

    John S.
  • “Your management of our ‘case’ was flawless. Your communication was impeccable. You were efficient. And you were caring. You were the shining light in this dark period.

    The CLL organisation is stronger for the input of the Eddie & Lisa. You are exceptional individuals and a formidable team.

    I thank you, and wish you every success in the future.”

    Josh A.
  • Hi Leticia

    I wanted to send you a personal note to say congratulations on the result achieved yesterday at the Conciliation Conference.

    Thank you for being a pleasure to work with.

    It has made the process much less painful having the professionalism and friendliness yourself and Clayton provided in looking after me. I am grateful for that and the outcome which allows me to get on with my plans.

    Steve D.
  • Hi Sheree,

    I just wanted to say a big Thank You for your kindness and diligence in my recent divorce case. Always making yourself available and answering my millions of questions was amazing!

    Sandy J.