No single factor determines whether a person is an employee or contractor. However, the basic explanation is that an employee works in your business and is part of your business. An independent contractor is running their own business but is contracted to your business.
We have summarised the most common factors that define the two types apart.
Employee:
- The worker can’t subcontract/delegate the work – they can’t pay someone else to do the work.
- The employee is paid for the time work, by a commission or by the price per item or activity.
- The business provides most equipment if not all assets required to complete the work.
- The business is liable for all legal responsibilities.
- The business has the right to direct the employee how they do their business.
- The employee is not operating independently.
Contractor:
- The contractor has the power to subcontract and pays someone else to do their work.
- The contractor is paid for a result achieved based on the quote they provided.
- The contractor provides most of the equipment if not all assets required to complete the work
- The contractor takes commercial risks due to being responsible for their work and costs.
- The contractor has freedom in the way the work is done (subject to specific terms in the contract)
- The contractor is independent of the business. They are free to accept or refuse additional work.
If you are considering which one is best for you, there is no right answer. It depends on a multitude of factors but specifically what trade you are. If you want more details on the legalities, obligations of an employee and a contractor or support determining which one suits you best. Contact us on (03) 9417 3511
