Contractor vs. Employee – What’s the Difference? [Free Factsheet]

Published

15 Nov 2023

Contractor vs. Employee – What’s the Difference? [Free Factsheet]

Published

Nov 15, 2023

2 min read

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.

Setting yourself up for success

Selecting the right employee is a serious choice, but deciding what type of employee to hire is another thing entirely. For some businesses, the flexibility of contractors is a perfect fit. However, many prefer the loyalty and connection of having a full-time team member. Whichever you choose will depend on multiple factors – business needs, the role itself, legislation, your future goals… There’s a lot to consider. For insights into managing freelance and temporary employees effectively, refer to our guide on managing freelance and temporary employees with Employment Hero. Whatever’s best for your business – it’s incredibly important to have made this decision prior to starting your recruitment process, so that your candidates are fully informed about what they’re applying for.

Can’t decide? Talk to a professional for tailored advice

There are many factors to consider in making this decision, and you should consider all of the legalities to make sure you’re on the right side of the law. Look both internally and externally via professional advice and see what the best option is for your business.

Did you know you can manage your contractors in Employment Hero?

Employment Hero is here to help you manage all your HR records, regardless of whether they’re employees or independent contractors. You can issue all contractor documentation to make sure your contractors know what their contractual obligations are, and the payment process they will need to follow. You can also have them sign all documents in-platform and send them reminders if they have any outstanding documents. With Employment Hero you have the ability to control what features contractors have access to and store all of their information on the HR platform. It’s the easiest way to keep track of everything in one place, without any paperwork. Other helpful resources: