Employee versus Contractor

Whether the nature of a working relationship is employee or contractor is not based on any single one factor, but rather a set of circumstances about the relationship needs to be considered. However, there are a set of common factors that contribute to whether a worker is an employee or a contractor:

Test Employee  Contractor 
 Level of control over the work performed and hours of work Performs the work as directed by their employer and has very limited control over how and when tasks are undertaken Exercises a large amount of control about how they go about completing tasks and when they are undertaken
 Expectations for ongoing work Has arrangements with the employer about ongoing regular work Usually engaged for a specific job that is not necessarily ongoing or is intermittent in nature
 Superannuation Entitled to superannuation contributions from employer under the Superannuation Guarantee Act Mostly pays own superannuation unless engages wholly or principally for labour the superannuation contributions should be made to the contractors’ superannuation fund
 Tools and Equipment Required tools and equipment provided by employer or an allowance is paid Uses their own tools and equipment as well as the maintenance of these
 PAYGW PAYGW is withheld from payments in accordance with tax rates and paid to the ATO PAYGW can be a voluntary arrangement or the contractor pays their own tax and GST to the ATO
 Payments Salary and wages are paid on a regular basis as set out in the award Contractor invoices the business, providing their ABN and is paid at the end of the project or as agreed in any contracts
 Leave Entitlements Employees are paid for personal and annual leave as well as long service leave as set out in the applicable award or agreement There is no entitlement to paid leave

The ATO has an employee/contractor decision tool to assist in determining how an individual should be treated and paid.

AAT recommends that when you are providing payroll related services to your clients you consider engaging HR experts to provide guidance, such as the AAT HR Advice powered by AB Phillips service.