Contractor or Employee?

Contractor or Employee is a question that is often misunderstood by businesses. Just because someone is paid under an ABN, it doesn’t mean the law treats them as a contractor.

Misclassifying a worker can result in having to pay superannuation, workers compensation, minimum award payments, payroll tax and penalties that otherwise may not have been payable. There is no clear answer so you are always best to seek advice.

Following are some key points to consider (this is a guide only):

• When a Business engages a contractor, make sure you have a well drafted contractor agreement
• When Superannuation and Workers Compensation likely applies when the contractor:
  • Is paid primarily for labour (not goods or services)
  • Works under the business’s control, on its premises, or follows its direction
  • Doesn’t have the right to delegate the work
  • Is an individual (not through a company)
  • Doesn’t bear the risk for errors and injury on the job

• When Payroll Tax likely applies (subject to the threshold being exceeded in total) when the contractor:
  • Works more than 90 days in a year for the business
  • Does not employ others (excluding bookkeeping)
  • Work is directed by the business, and the contractor works on the business’s premises/work sites
  • Payment is primarily for labour rather than goods or services

We suggest you contact HQB to arrange a discussion so that you can correctly classify the treatment of your contractors.

– Ian Hogbin

Posted 10.03.2025

This article is compiled as a helpful guide for your private information and is subject to copyright. We suggest that you do not act solely on the basis of material contained in this article because items are of general nature only and may be liable to misinterpretation in particular circumstances. We recommend that our advice be sought before acting on any of these crucial areas.