The Income Tax and Superannuation Guarantee Laws are structured in a way that, even if a worker has an ABN, the employer is still obliged to determine whether the worker is in fact a ‘genuine’ contractor or really an employee. To be able to determine between the two you need to look at the whole working arrangement.

Following is a table that depicts the main differences between the two. However, some types of workers such as apprentices, trainees, company directors, labourers and trades assistants are always employees and you need to treat them as such.

They cannot pay someone else (sub-contract) to do the work.They are allowed to pay someone else (sub-contract) to do the work.
They are paid:
• for the time worked
• a price per item or activity
• a commission.
They are paid for a result achieved based on the quote they provided.
Your business provides all or most of the equipment, tools and other assets required to complete the work


The worker provides these but your business provides them with an allowance or reimburses them for the cost of the equipment, tools and other assets.
The worker provides all or most of the equipment, tools and other assets required to complete the work.
No commercial risks - your business is legally responsible.The worker takes commercial risks - the worker legally responsible for their work.
Your business has the right to direct the way in which the worker performs their work.The worker has freedom in the way the work is done subject to the specific terms in any contract or agreement.
The worker is not operating independently from your business as they are considered part of your business.The worker is operating their own business independently from your business - they perform services as specified in their contract or agreement and is free to accept or refuse additional work

It is vital to check whether your workers are employees or contractors, as your tax, super and other government obligations are different depending on whether the working arrangement is employment or contracting.

Businesses that incorrectly treat employees as contractors face penalties and charges, including:

  • PAYG withholding penalty for not meeting their PAYG withholding obligations
  • Super guarantee charge (for not meeting their super obligations) this is made up of super guarantee shortfall amounts, interest and an administration fee.

The best time to check whether a worker is an employee or contractor is before you engage them. If you have already engaged a worker, it is worth reassessing to ensure you have them under the right category. If you require assistance to determine what category your current workforce falls under, or advice on how to mitigate your associated risks, please call us on +61 3 8319 4076.