Difference Between an Independent Contractor and Employee in Australia

Nowadays, there’s many ways that you can commission help for the tasks required by your business. It’s important to understand which category each worker falls in as it can have a big impact on your business structure, taxes, and legal responsibilities.

In this article we will cover the difference between an independent contractor vs an employee in Australia and a way to pay your employees anywhere in the world with the Wise business account.

What is an Independent Contractor?

A contractor is a self-employed person who is commissioned to do specific tasks for your company. They can be part of an entity or just invoice as an individual but the most important part is that they work independently, not as a part of your organisation. They have the right to work from anywhere and decide how they work.

The main difference between an employee and an independent contractor is that an employee serves your business and represents your business. An independent contractor works for themselves and for their own business, they only lend their work for agreed periods of time or projects. They often have to sort out their own taxes, insurance, and invoices for example.

It’s important to understand what type of employees you have working for you to understand what are your legal rights and obligations as an employer. These are usually determined in the contract of each worker, which can be a number of combinations between written, verbal, and implicit agreements. You might want to consider employing contractors for seasonal work or for high expertise that you know you won’t be needing long term or past a specific project.

Pros and cons of hiring contractors vs employees

As both options have both pros and cons, it will really depend on the needs and resources of your business. Some of the main considerations for you to take into account are listed below.

Employees

Pros:

• Assets: Skilled full-time employees are great assets that execute the daily tasks needed to keep the company running.
• Control: Employees can be monitored more closely and there can be more input on how things are done as well as the results.
• Company culture: The people who work at a company are very important to make the environment pleasant for everyone and foster company loyalty.
• Unexpected events: Employees are available and have the company knowledge necessary to jump on any unforeseen challenges.

Cons:

• Higher costs: continued employment means higher costs in salaries, benefits and leaves for employers.
• Talent diversity: It might be too expensive to hire and keep someone with a high level of expertise on the team.

Contractors

Pros:

• Flexibility: You can hire someone for specific tasks or projects according to seasonality or any other business need.
• Cost saving: No need for full time salaries or benefits.
• Skill gaps: There might be a short time need for specific expertise that a contractor can bring, without the need for them to stay long term.
• Efficiency: Contractors are brought in with clear deliverables. They don’t need to use their time using company resources such as payroll and management. It’s also easier to assure that the job is completed in an efficient time period.
• Hire globally: You can outsource talent from any part of the world, making it much easier to find the specific skills needed.

Cons:

• Lack of control: Contractors work for themselves and usually conserve autonomy on how they perform their tasks.
• Availability: It’s also possible that they’re not available as freelancers will often work for several clients. This can be a problem if there’s time constraints or urgency involved.

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Differences between independent contractor and employee in Australia

To make it easy, we’ve compiled some of the main considerations that Australian businesses need to keep in mind when considering the difference between independent contractors and employees.

Independent Contractor vs Employee: What’s the best choice for your business?

To decide which type of employees your business needs comes with significant tax and legal implications, so it’s important to map out the specific needs that need to be covered and understand what those implications mean. Both options come with many advantages and disadvantages so it will also depend on the financial capability of your business and what brings least strain on your operations.

In the case of any concerns for meeting different legal obligations, it’s always best to seek professional help to navigate the Australian system and make sure everything stays compliant.

For businesses that frequently engage with contractors, especially those overseas, a tool like the Wise Business account can be invaluable. It allows for transparent, low-cost international payments allowing you to pay contractors in over 150+ countries with the real exchange rate.

In addition, the Wise Business account offers features like batch payments to streamline payouts to multiple contractors at once. This can significantly reduce administrative burden and save on currency conversion fees.

Here's what you get with a Wise Business account:

• Free to register — Hold and convert between 40+ currencies. Send to 140+ countries
• Debit cards for you and your team, which you can use in 150+ countries
• Multi-user access for team members, with ways to control and manage permissions
• Pay up to 1,000 recipients at once with the Wise batch payments feature
• Integrate with your favourite cloud accounting solutions like Xero, Quickbooks, and more
• Get account details to receive in 8+ currencies for a one-time fee of 65 AUD

Sign up for the Wise Business account! 🚀