They say actions speak louder than words; the law would agree. To determine whether a worker is a contractor or an employee, you should consider their behaviour – not only the title they have been given.

Although the line can sometimes be blurry, drawing a distinction is however of utmost importance since it defines each party’s rights and obligations.

Who is an employee? Who is a contractor?

Generally speaking, an employee is person who agrees provide labour for a company and thus becomes part of the company. The law dictates a certain amount of requirements including parental leave, minimum rates of pay and meal breaks.

A contractor is a person who agrees to do work for a company usually to fulfil a specified task but is not part of the company. A contractor is an alternative to hiring an employee where each agreement is flexible to fit parties’ purposes.

What’s the difference between a contractor and an employee?

Some of the key criteria distinguishing between a contractor and an employee in substance, that is, if we look beyond the title to the behaviour, are outlined in the following table.

A comprehensive table is available here.

Should you hire a contractor or an employee?

Overall it seems that employees are more beneficial in the long run. They provide for stability, increased productivity and are invested in the company.

Contractors provide more flexibility but are more complex to administer from the employer’s perspective. You may like to consider contractors where you need a specific task done.

Contractors

Pros

  • You have the freedom to decide the terms of the agreement including the price;
  • You do not owe the contractor any leave;
  • You employ a contractor for a specific task rather than a time frame;
  • The contractor provides the materials and equipment;

Cons

  • Creating a quality contract requires attentiveness to all legal requirements like insurance, superannuation and dispute resolutions processes;
  • The contract may be poorly created leading to disputes;
  • You must meet external standards like superannuation deadlines or determine whether to pay payroll tax.

Employees

Pros

  • There is stability and increased productivity in the long term;
  • Your costs are fixed throughout the year.

Cons

  • Limited flexibility.

 

How Can LawPath Help?


Still unsure whether you’ve hired an employee of contractor? Contact a LawPath consultant on 1800LAWPATH to learn more about obtaining a fixed-fee quote from our network of 600+ expert lawyers or to get answers to your legal questions.

Dominic Woolrych

Dominic is the CEO of LawPath, dedicating his days to making legal easier, faster and more accessible to businesses. Dominic is a recognised thought-leader in Australian legal disruption, and was recognised as a winner of the 2015 Australian Legal Innovation Index.