Differentiating Employees from Independent Contractors in Australia

Employees and independent contractors can, at the very simplest, be defined by the relationship to the employer. In general, there is a relationship of ‘servitude’ between employee and employer, where the employee is subservient to the employer and must carry out duties and tasks for remuneration. An independent contractor, on the other hand, has a trade or business of their own with no subservient relationship to the employer. 

There are other key points that help to define whether someone is an employee or an independent contractor. 

Employees vs Independent Contractors 

There are several ways to determine if someone is an employee. Some of the most common are: 

  • The employer will be able to direct how the duties are carried out. 
  • All commercial risk is carried by the employer, not the employee.  
  • The employer will define the location and time of work. 
  • Remuneration will be in the form of a salary or wages. 
  • The employer provides the tools, equipment and materials for carrying out the work. 

On the other hand, the following points may indicate that someone is an independent contractor: 

  • The contract hinges on a result, rather than ongoing labour. 
  • The worker carries the commercial risk, along with responsibility for loss due to poor workmanship. 
  • The worker sets their own hours of work. 
  • Payment for work is given on receipt of an invoice. 
  • The worker provides their own equipment. 

Differences in Taxation 

In addition to the above, there are fundamental differences between the taxation of employees and independent contractors. For employees, the employer must withhold taxes from their wages and submit that sum to the Australian tax office. Independent contractors are paid the gross sum of their remuneration, and submit taxes themselves at the applicable company rate. 

Other Differences 

There are significant differences in both benefits and protections for employees and independent contractors. Under the National Employment Standard, employees are entitled to benefits including parental leave, annual leave, maximum working hours, public holidays and minimum rates of pay. Independent contractors are not entitled to these benefits.  

Determining Employment Classification 

If you have any queries about defining employment classifications, including the benefits of hiring employees or independent contractors, we are here to help. Please do not hesitate to contact us