They work within and are considered part of the business.Ī contractor operates their own business independently from the hiring business. The business has the right to direct the way in which the worker performs their work.Ī contractor has freedom in the way the work is done, subject to the specific terms in any contract or agreement.Īn employee ds not operate independently from the business. They are liable for the cost of rectifying any defect in their work. The business is legally responsible for the work performed by the worker and liable for the cost of rectifying any defects in the work.Ī contractor takes commercial risks, and is legally responsible for their work. The worker ds not receive an allowance or any reimbursement for the cost of equipment, tools or other assets.Īn employee takes no commercial risks. The worker provides all or most of the equipment, tools and other assets required to complete the work. Or the worker provides all or most of the equipment, tools and other assets required to complete the work, but the business supplies them with an allowance or reimburses them for the cost of the equipment, tools and other assets. The business provides all or most of the equipment, tools and other assets required to complete the work. They cannot pay someone else to do the work.Ī contractor is free to sub-contract or delegate work.Ī contractor is paid for a result achieved based on the quote they provided. Here is a summary of the differences between being an employee or a contractor:Īn employee works in the business and is part of the business.Ī contractor runs their own business and provides services to a business.Īn employee cannot sub-contract or delegate the work. Although some believe that possessing an ABN is enough to qualify you as a contractor, the table below demonstrates that there's much more to it than that. This may sound simple, but in reality it quickly becomes quite complicated. The basic rule is: if you are engaged just for your labour, you are considered an employee rather than a contractor, from a tax point of view. For disciplined workers it can be a great option, but the down side is that is that it offers little job security, a lack of access to traditional employee rights and considerably more paper work. The biggest reason many people choose to work as a contractor is that it allows them a relative amount of freedom to choose their clients, hours and rates. What is the benefit of being a contractor? It also generally saves on both expenses and red tape. Using contractors can give a business a lot of financial freedom, as it gives them the flexibility to hire and fire whenever needed, to cover fluctuations in the order book. Independent contractors are effectively treated like a small business, and this set up comes with a range of tax implications including potentially having to manage your own GST registration and payments, as well as paying your own income tax (rather than having it deducted by your employer). Contractors can also perform work for more than one business at a time. Once an assignment is finished, a contractor can move on to a new assignment with a different business. They set their own hours of work and are paid a fee for completing each set assignment. It can have huge implications and far reaching consequences for both the business and the individual – so you really want to make sure you have it right.Ĭontractors (sometimes called consultants) are self-employed people engaged for a specific task at an agreed price and with a specific goal in mind, often over a set period of time. Understanding whether you're an independent contractor or an employee is crucial in certain trades.
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