The Key Differences
| Employee | Contractor | |
|---|---|---|
| Tax withholding | Employer withholds PAYG | You manage your own tax |
| Super | Employer pays 12% | You pay your own |
| Leave | Entitled to annual, sick, parental | No leave entitlements |
| Deductions | Limited work-related | All business expenses |
| GST | Not applicable | Register if over $75k turnover |
| Insurance | Workers comp via employer | Need your own |
Why It Matters
Some employers deliberately misclassify workers as contractors to avoid paying super (12%), payroll tax, workers compensation, and leave entitlements. This is called "sham contracting" and it's illegal. If you're being treated like an employee but paid as a contractor, the ATO can reclassify the arrangement — and your employer will owe back-payment of super plus penalties.
The Real Test
The ATO looks at the real nature of the working relationship, not just what the contract says. Key factors: Do you control how, when, and where the work is done? Do you use your own tools? Can you subcontract? Do you work for multiple clients? Can you make a profit or loss? If the answers are mostly "no", you're likely an employee.
Frequently Asked Questions
My contract says I'm a contractor but I think I'm an employee. What do I do?
Contact the ATO or Fair Work Ombudsman. They can assess your situation. If you're reclassified as an employee, your employer may owe you super, leave, and other entitlements.
Do contractors get super?
Not automatically. If you're a genuine contractor, you're responsible for your own super. However, if you're paid mainly for your labour (not results), your client may still be required to pay super even if you have an ABN.
Is it better to be a contractor?
It depends. Contractors can earn more per hour but miss out on super, leave, and job security. Factor in 12% super, 4 weeks leave, sick leave, and insurance costs before comparing rates.