What is an independent contractor?

In Australia, about 1.1 million people, or 7.5% of the workforce, are independent contractors¹. They’re common in construction, IT, healthcare, and professional services, usually hired for projects or specialist skills. Contractors aren’t the same as employees under Australian law. Businesses often engage contractors for short-term projects or specialist skills without adding permanent staff.

The catch is that contractors and employees aren’t the same in the eyes of the law. Knowing the difference matters because it affects tax, super, and workplace obligations.

This article explains what an independent contractor is, how they differ from employees in Australia, and how Wise Business makes paying contractors, especially overseas, easier.

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What is an independent contractor?

An independent contractor is someone who works for themselves and gets hired by a business to do a job. They’re not part of your company like an employee; they agree on the work, set a price, send you an invoice when it’s done, and often work for more than one client at a time.

Most businesses bring in contractors when they need extra hands or specialist skills. It could be a builder on a construction site, a designer creating a new brand logo, or an IT consultant fixing a network issue. Contractors give businesses a way to get things done without adding permanent staff.

Benefits of hiring an independent contractor

Thinking about hiring an independent contractor? Here are some reasons why you should:

• Access to specialist skills in areas like web development, accounting, or trade services.
• Strong presence in industries such as construction, mining, IT, and healthcare, especially for short-term or remote work.
• Flexibility to step in during busy periods and scale back when demand slows.
• Fewer admin tasks for the business since contractors manage their own tax and super.
• Lower overheads because they don’t get paid leave or other employee benefits.
• Fresh ideas from working with different clients and industries.

Challenges involved with hiring an independent contractor

Here are some of the common challenges businesses face when working with contractors:

1. Less control over work
Contractors usually decide how and when they’ll do the job. As long as the end result matches the agreement, you don’t get the same say you would with an employee.

2.Risk of misclassification
In Australia, misclassifying an employee as a contractor is known as sham contracting. It can lead to penalties, back payments, and legal disputes under ATO and Fair Work rules².

3. Short-term focus
Most contractors are brought in for a project or task. Once it’s finished, they move on. That can leave you starting fresh with someone new next time.

4. Possible conflicts of interest
Contractors can work with more than one client at a time, so sometimes they might also be working with a competitor.

5. Quality can vary
Since contractors aren’t part of your team, the way they work and the quality they deliver can differ.

6. Knowledge walks out the door
When a contractor leaves, they take what they learned with them. Without a proper handover, important info can be lost.

7. Higher rates
Contractors usually charge more per hour or per project than employees. It works for short jobs but can get expensive if the work drags on.

Differences between independent contractor and employee in Australia

In Australia, employees and independent contractors are treated differently. The rules cover how they’re paid, who controls the work, and what responsibilities each side has. Here’s a table that shows the main differences based on ATO guidance.

Difference with paying independent contractors and employees

Employees in Australia are usually paid through payroll. Their wages or salaries are processed on a regular cycle, such as weekly, fortnightly, or monthly. The business withholds tax through PAYG, makes superannuation contributions, and provides paid leave such as annual, sick, or long service leave. Payments are steady, and employees are tied to ongoing workplace entitlements.

Independent contractors are paid differently. They quote for a job or project, and once the work is completed to the agreed standard, they send an invoice to get paid. They’re generally paid the full or majority amount of that quote rather than receiving ongoing wages. Contractors handle their own taxes, except in special cases where the business still has obligations, for example, labour-only contracts or work in the entertainment industry.

For employees, costs continue with wages and leave, even when projects slow down. Contractors, on the other hand, are paid for the work they deliver, but that also means handling invoices, deadlines, and quality checks. Simply put, employees are part of the business, while contractors operate on their own and get paid for results.

Wise Business for managing global workforce

Paying independent contractors overseas can be complicated. Exchange rates change, banks add fees, and transfers are often delayed. For Australian businesses, this creates extra admin and uncertainty about the final cost of each payment. Contractors generally anticipate timely and reliable payment, and disruptions in this process can negatively impact professional relationships.

Wise Business helps simplify this. With one account, businesses can manage international payments without the usual complications.

A Wise Business account allows users to can send, receive, and hold in multiple currencies. Experience hassle-free global transactions by transacting like a local business. 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! 🚀

This general advice does not take into account your objectives, financial circumstances or needs and you should consider if it is appropriate for you.

Sources:

1. Independent contractors in aus
2. Sham contracting
3. ATO-Difference between employee and independent contractor