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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:

TestEmployeeContractor
Level of control over the work performed and hours of workPerforms the work as directed by their employer and has very limited control over how and when tasks are undertakenExercises a large amount of control about how they go about completing tasks and when they are undertaken
Expectation for ongoing workHas arrangements with the employer about ongoing regular workUsually engaged for a specific job that is not necessarily ongoing or is intermittent in nature
SuperannuationEntitled to superannuation contributions from employer under the Superannuation Guarantee ActMostly pays own superannuation unless engages wholly or principally for labour the superannuation contributions should be made to the contractors’ superannuation fund
Tools and EquipmentRequired tools and equipment provided by employer or an allowance is paidUses their own tools and equipment as well as the maintenance of these
PAYGWPAYGW is withheld from payments in accordance with tax rates and paid to the ATOPAYGW can be a voluntary arrangement or the contractor pays their own tax and GST to the ATO
PaymentsSalary and wages are paid on a regular basis as set out in the awardContractor invoices the business, providing their ABN and is paid at the end of the project or as agreed in any contracts
Leave EntitlementsEmployees are paid for personal and annual leave as well as long service leave as set out in the applicable award or agreementThere 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.

We don’t offer payroll only services, nor do we profess that we are payroll and HR experts. However, we do keep up with relevant changes and have access to HR experts to assist with matters that can be a bit hairy and aren’t as straight forward.

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