Employee or Subcontractor

What's the difference between an employee and a subcontractor?

It's important that you know the difference as you will have different obligations for each. The simplest way of working it out is by using the the Australian Taxation Office decision tool

Employee

If you answer yes to some or all of these statements it is likely that an individual is an employee. If they:

  • work under your (the business owner's) control;
  • paid for the time they work;
  • receive paid leave (sick, annual, long service, and so on);
  • use materials or equipment provided by the business to do their job;
  • perform the duties of the position;
  • have agreed to provide their personal services;
  • work hours which are set by an agreement or an award;
  • are recognised as part and parcel of the business; and
  • take no commercial risk and cannot make a profit or loss from the work performed.

Subcontractor

At its essence a subcontracting arrangement is a business-to-business relationship. You would hire a contractor who could be an individual, partnership, company or trust, to complete a certain task at a certain price.

The contractor has undertaken a contract for service, not a contract of service. A contractor is not an employee.

You should note that if a worker has an ABN, it doesn't automatically mean that they are contractors. You also need to consider other factors, in particular the degree of control exercised by the employer. In most cases, if you answer yes to the following statements the employee is a contractor:

  • Are they paid for results achieved?
  • Do they provide all or most of the necessary materials and equipment to complete the job?
  • Are they free to delegate work to others (including subcontractors)?
  • Do they have freedom in the way the work is done?
  • Do they provide services to the general public and other businesses?
  • Are they free to accept or refuse work?
  • Are they in a position to make a profit or suffer a loss?

For more information visit the ATO website

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Related Information

Business Brief to view:
Employment

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