In Australia, we have one of the most complex and confusing employment law systems in the world. From the Fair Work Commission (FWC) to the National Employment Standards (NES), there’s a lot of information (and acronyms) for businesses to be across.

When it comes to how people perform work in your business, there’s two common types of workers that can be easily confused – independent contractors and employees – and the way they get categorised depends on the nature of the working relationship.

Independent contractors come in handy for small businesses where you rely on outsourcing part of your work. However, simply labelling a worker an independent contractor does not make it so in the eyes of the law. That’s why it’s important to correctly classify your employees and independent contractors or you could risk getting caught up in ‘sham contracting’.

With lots of legalities to be across, we’ve created this factsheet to help you understand if you should be hiring an employee or engaging an independent contractor for work in your business.

In this factsheet, we cover:

• What’s the difference between an employee and an independent contractor?
• Independent contractors vs. employee checklist
• Why might you engage an independent contractor instead of hiring an employee?
• What happens if you wrongly classify an independent contractor?
• What is sham contracting?
• What’s the difference between a contractor vs. subcontractor?

Disclaimer:

The information in this report is relevant as at 6 November 2023, and has been prepared by Employment Hero Pty Ltd ABN (11 160 047 709) (Employment Hero). The views expressed herein are general information only and are provided in good faith to assist employers and their employees. The Information is based on data supplied by third parties. While such data is believed to be accurate, it has not been independently verified and no warranties are given that it is complete, accurate, up to date or fit for the purpose for which it is required. Employment Hero does not accept responsibility for any inaccuracy in such data. To the maximum extent permitted by law, Employment Hero will not be liable to any party in contract, tort (including for negligence) or otherwise for any loss or damage arising either directly or indirectly as a result of reliance on, use of or inability to use any information provided in this report. Where liability cannot be excluded by law then, to the extent permissible by law, liability is limited to the resupply of the information or the reasonable cost of having the information re-supplied.