As your business grows, it’s natural for you to seek extra help to ensure you’re delivering your products or services while you stay on top of all the fun behind-the-scenes stuff—for example, administration, product quality, bookkeeping, marketing, etc.
Whether you’re seeking an employee or a contractor, make sure you know the difference between the two—it’s imperative to know what your tax and super obligations are and who they’re relevant to as this can save you a lot of time, money, and stress later on!
Without further ado, let’s dive into the six key differences between an employee and a contractor. Ready? Okay!
- Who does the work?
While employees and contractors both do the work, employees are delegated tasks on an ongoing basis whereas contractors are sub-contracted to focus on an area of their expertise. Let’s use a social media agency with various clients as an example—you’d delegate tasks relevant to your industry to your employee but you’d outsource a contractor to look after your bookkeeping.
- What’s the basis of payment?
Employees receive payments for the time worked (typically hours or shifts), for each item or activity completed, or as commission. Meanwhile, contractors will supply a quote for the expected work and an invoice upon project completion—they will also receive all or most of the amount paid.
- What is needed to complete the work?
If you hire an employee, you’ll need to provide the tools, equipment or other assets that is required to complete the work. Alternatively, the employee can use their own items, but the business will need to provide an allowance or pay them back for the cost of the items.
It’s common for contractors to buy or hire their own tools, equipment or other assets and use these to complete the work for you.
- If a mistake is made, who is responsible to fix it?
Mistakes happen—we’re all human! In the event where an employee makes a mistake, your business ultimately takes responsibility to provide a solution and/or covers the expense of fixing it.
However, if a mistake is made by the sub-contractor, they are responsible for providing a solution and/or covering the costs of fixing it at their own expense (and time!).
- How is the work controlled?
Both employees and contractors will complete the work required of them. The key difference is that an employee will follow any reasonable work request, whilst a contractor can do the work in any way you like if it’s agreed upon through a contract or agreement. This means an employee must conduct any work that falls within their employment scope whereas a contractor can choose to accept or deny on their own accord.
- Will they be seen as part of the business or separate?
Employees are considered part of the business whereas contractors operate independently.
Got another question about employees and contractors? Feel free to ask our friendly team here!