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Do You Have an Employee or Contractor? A Checklist for Businesses

Categories: Other, Small Business
4 August 2015

Do You Have an Employee or Contractor

As a business grows, one of the most important roles of a manager or owner of a small business or medium sized enterprise is finding the right person to help with that growth.

Australia is lucky to have a world class education system, a well balanced workforce, and an incredibly diverse range of professional and cultural backgrounds to draw upon to fill vacancies in businesses.

But there are important differences that trip up many business owners and managers – mainly to do with who is classed as an ‘employee’, and who is a ‘contractor’.

The rights and responsibilities of the parties change depending on what the person is, including superannuation, wages, leave and other conditions. Not complying with the correct rules to do with an employee, for example, can see employers reprimanded or penalised by a range of agencies from the Fair Work Ombudsmen to the Australian Taxation Office.

So what factors help determine whether a person who works for your business is an employee or contractor?

Degree of Control

There is no one black and white rule about who is an employee or contractor. Instead, there are a range of indicators that are taken into account. One of the most important is the degree of control that the person has over the work they perform.

For example, an employee will perform tasks under the direct direction and control of a manager or supervisor. In comparison, a contractor has a much greater degree of control over how the tasks they are assigned are completed.

Hours of Work

This is fairly self explanatory, in that employees will generally have fixed hours according to a contract or standard working hours, with the expectation that these hours are met.

On the other hand, a contractor is employed for a result or specific task, such as completing a delivery, painting a house, or installing a fixture.

Risks

Employees are generally indemnified for the financial risks that they might encounter on behalf of their employer. For example, if a supermarket worker accidentally spills water and while they are getting a mop to clean it up, a customer slips and falls, the supermarket, not the employee, will bear the financial risk of compensation.

Meanwhile, contractors bear the financial risk for their work. This is why many contractors choose to have professional indemnity insurance, to protect their income and businesses in the event of any adverse financial risks.

Superannuation

Employees of businesses in Australia have the right to a minimum amount of superannuation paid by their employer, which is mandated by law. Contractors are generally responsible for their own superannuation, and make contributions at their own discretion.

These are just some of the ways in which managers and owners can determine whether the people helping grow the business are employees are contractors.

To find out about the others, and how the factors apply to your situation specifically, we encourage you to give our friendly team at Scott Partners a call to schedule an appointment. We can give you professional, clear advice and help your business grow now and in the future.

 

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