Employees & Contractors – What’s The Difference?

So you’re contemplating hiring or outsourcing, woo hoo! Congratulations on reaching that point in your biz – it’s very exciting. It can also be daunting if you’ve never done it before and don’t know what to do or which option is best. So I’ve summarised some of the key points for you to think about.


  • are paid wages
  • all payments must be reported to the ATO via Single Touch Payroll (STP) using compliant (connected to the ATO) payroll software
  • full/part time – accrue leave (annual & sick), pro rata for the part timers
    • these team members have fixed hours per week
  • casuals – need to be paid with a casual loading (normally 25%) instead of leave accruing
    • these team members are rostered/needed for different hours each week fluctuating with your business needs
  • you tell the employee the hours to work, how to do it etc
  • they are responsible for doing the work – they can’t outsource it
  • you need to have workers comp insurance for the employees


  • are paid on submision of invoice to you
  • must hold an Australian Business Number (ABN)
  • provide all their own equipment (generally)
  • you have a written contract between yourselves
  • can delegate the work to their own team or outsource
  • must hold all their own relevant insurance(s)

Contractors can still be classed as employees

When hiring a contractor, it is best to check if they would still be classed as an employee by the ATO. If they are, you still have super/tax obligations. Meaning you are legally required to pay super on top of what you pay them.

Check out the ATO website for more info here and they also have a tool to help you work out if the person will be an employee or contractor.

For example even if they are invoicing you and have an ABN – if you tell them their hours, provide their equipment, they work solely for you, can’t delegate the tasks and other factors, they are classed as an employee. So be sure to use the ATO tool to check to make sure you’re doing the right thing.

Want more info?

Check in with your BAS/Tax Agent or HR professional for help and support specific to your business as this is just a general overview and doesn’t include all the information or any advice for your personal circumstances.

Also refer to the award relevant to your role/business for further info on hours, super etc. Here’s the FairWork Find My Award info.

There are pros & cons for each way, be sure to do your own research and get professional advice as HR & Payroll is actually quite an in depth topic and might be somthing you want to out source.

We can help you!

Please get in touch if you want to outsource your payroll, we love it. You can book a discovery call to have a chat.

Similar Posts