Employee or sub-contractor, do you know the difference?

If you are employing staff to perform tasks for your business, it’s important for you to know the difference between a sub-contractor and an employee, so you can be sure that you are meeting your obligations regarding tax and super contributions.

It’s likely that someone would be considered an employee by the Australian tax Office if they work under your business name, receive paid leave entitlements such as sick leave or annual leave. Other factors that might be taken into consideration are whether they:

  • use materials or equipment provided by the business to do their job;
  • work hours which are set by an agreement or an award; and
  • take no commercial risk and cannot make a profit or loss from the work performed.

A sub-contractor on the other hand is a business to business relationship, who might be an individual service provider, partnership, company or trust who is contracted to perform a certain task at an agreed price. The point of difference is that a contractor has undertaken a contract for service, not a contract of service and a contractor is not an employee. However, you should be aware that if a worker has an ABN, it doesn’t automatically mean that they are contractors. Other factors for consideration might be the particular degree of control exercised by the employer. In most cases, if you answer yes to the following statements the employee is a contractor:

  • Do they provide all or most of the necessary materials and equipment to complete the job?
  • Do they provide services to the general public and other businesses?
  • Are they in a position to make a profit or suffer a loss?

If you are still uncertain, one of the simplest ways of working it out is by using the the Australian Taxation Office decision tool at www.ato.gov.au

The Small Business Centre Bunbury Wellington is known as the go to group for business advice in the South West region. As well as providing expert advice for new and existing businesses, we also host events and workshops to help build new skills within the business community.

If you would like more information about your obligations as an employer, please call 0897 912666 or Email admin@sbcbw.asn.au and a business advisor will contact you to arrange an appointment.