While expanding your workforce can be an exciting opportunity for your business, it is essential for you to ensure that the right decisions around recruitment are made during this process. You don’t always have to hire a permanent employee for every role. For example, if your business needs someone with specific skills for a short-term project, hiring a contractor could be an alternative.
What’s the Difference?
An employee works in a business and is part of your permanent workforce. A contractor, on the other hand, runs their own business and provides their services to other businesses on a temporary basis.
Learn more about the differences between a contractor and an employee.
Does it Matter to Me?
Yes! Your legal obligations as an employer differ depending on whether you hire someone as an employee or engage a contractor.
For example, you are not obligated to make any contribution toward the independent contractor’s superannuation. However, you must make compulsory superannuation guarantee contributions to an employee’s nominated superannuation fund.
Similarly, contractors pay their own tax and Good and Services Tax (GST) to the Australian Taxation Office (ATO). However, you have a legal obligation to withhold pay-as-you-go tax from payments of salary and wages made to an employee.
Lastly, an employee is paid a salary, hourly rate and/or commission. A contractor, however, is generally paid based on a result achieved.
Any Benefits of Hiring a Contractor?
Yes, many! Hiring a contract worker can bring several benefits for your business.
Cost Savings
By hiring a contractor instead of an employee, you can save money. You don’t have to pay taxes, social security or benefits. Moreover, contractors supply most, if not all, equipment required to complete their work. Contractors also forfeit benefits such as annual leave which can significantly cut your costs.
Organisational Flexibility
Contractors can be hired on a short-term basis. Thus, if the task is completed early or the budget is suddenly cut, the contractor can easily move on. You could always hire another contractor if the contractor that you decide to hire is not a good cultural fit with your business.
This increased flexibility can also be very useful if you have a fluctuating workload. Subsequently, for tasks where speed is of the essence, and you certainly need a large influx of staff, contractors can fill this gap.
Reduced Legal Liability
You have a legal obligation to insure against liability for injury to your employees. However, contractors are their own employers and have to provide their own insurance. Likewise, your employees are protected under the Federal and State laws and regulations. Contractors, on the other hand, are not covered under these regulations, thus greatly limiting your liability.
So, What’s The Catch?
Even though hiring a contractor seems like the way to go, it is not that simple. You need to take into consideration some of the challenges of hiring a contractor.
Lack of Loyalty
As you hire contractors for short term jobs, it can be difficult to cultivate loyalty. There are chances that they leave you in the dust if a higher paying project comes along.
Lack of Control
Unlike employees, contractors are largely independent and do not require close supervision or training. It is important for you to make sure that contracts and paperwork are in order. Not outlining expectations in a written agreement could produce copyright issues in the future.
Refer to our article on how to hire a contractor to learn more about things that you need to include in your contractor agreement.
Getting everything in writing is the key. For instance, having a Non-Disclosure Agreement will ensure that the information disclosed between you and your contractor remains confidential. Moreover, this will allow you to talk openly with your prospective contractors.
Things to Consider When Hiring a Contractor
If you have decided to hire a contractor you can create your own contractor agreement here. These agreements are very straightforward to negotiate. However, if it involves a large sum of money and if the task that you are engaging the service provider to do is complex and large, it is best to connect with one of our lawyers to get some advice on hiring a contractor.
