Employee vs Contractor

Employee vs Contractor

Posted on Posted in Book keeping, Payroll, Small Business, Superannuation, Taxation

Employee vs Contractor

Are you hiring an employee or contractor?

It’s important you get this right because it affects your tax, super and other obligations. If you wrongly treat your employees as contractors you risk having to pay penalties and charges.

If you’ve previously hired a worker without checking whether the arrangement is employment or contracting, you should review your earlier decision now to make sure you got it right.

Employee vs Contractor decision tool

You can use the Australian Taxation Office Employee/contractor decision tool to work out if your worker is an employee or contractor for tax and super purposes.

The decision tool is for use by businesses that engage and pay a worker.

The tool is not designed for labour hire firms or individual workers.

Next step:

Superannuation and PAYG withholding obligations – contractor

If your worker is a contractor:

  • they generally look after their own tax obligations, so you don’t have to withhold from payments to them unless they don’t quote their ABN to you, or you have a voluntary agreement with them to withhold tax from their payments
  • you may still have to pay super for individual contractors if the contract is principally for their labour
  • you don’t have FBT obligations.


Naturally, if your worker is an employee make sure you are withholding PAYG tax amounts from all payments, comply with all your superannuation obligations and issue them a payment summary by 14th July 2016 for the 2015-2016 financial year.