Contractor or Employee

If you are running a business, it is likely that you will be engaging the services of another individual person in the course of your business. The question I get asked time and time again is: “Should I employ the individual or engage them as a independent contractor?”

There are many factors to take into consideration when making this decision and the appropriate choice will depend on the your business’ unique set of circumstances. A key point to be aware of is that just because an individual has an ABN does not automatically mean that they will be deemed to be an independent contractor.

Some factors you may consider when making this decision are; payment of leave entitlements, payment of superannuation guarantee, control over the work being performed, termination payments, etc.

It is important that you fully understand the legal relationship which you have with this individual, be it as an “employee – employer” or “independently engaged contractor” becuase that will determine what payments and obligations you may have in resepct of that individual.

The Australian Taxation Office (ATO) provides a tool on their website which will assist you in determining the type of relationship you have with that individual who is providing their services.

Click here to access the tool.  Please note the disclaimer on the ATO website regarding the use of this tool.