If you ask enough employers, you will soon realise that each holds their own opinion on whether hiring employees or contractors is a better business decision. Interestingly this same group likely has a different view on whether an individual is a contractor or employee depending on their understanding of the relevant rules.

There is no right or wrong as to whether employees or contractors (or a mix of both) are the right option for your business but you certainly need to understand the difference and the obligations associated with both.

When determining if an individual is an employee or a contractor the following is a handy guide:

ABILITY TO SUBCONTRACT/DELEGATE

Employee: The worker cannot subcontract/delegate the work to anyone else

Contractor: The worker can pay and subcontract/delegate the work to someone else of their choice

BASIS OF PAYMENT

Employee: The worker is paid either for the time worked, a price per item/activity or a commission

Contractor: The worker is paid for a result achieved based on the quote they provided

EQUIPMENT & TOOLS

Employee: Generally your business would provide all or most of the equipment and tools required to complete the work. If you prefer the employee to provide this instead, your business would provide them without an allowance or reimbursement for the provision

Contractor: The worker will provide all the equipment and tools required to complete the work. No allowances or reimbursements need to be offered to cover the costs in this respect.

COMMERCIAL RISKS

Employee: Your business is legally responsible for the work done by the work and is liable for the cost of rectifying any defects

Contractor: The worker takes commercial risks and is legally responsible for their work and any costs to rectify any defects in their work

CONTROL OVER THE WORK

Employee: Your business has the right to direct the way in which the worker does the work

Contractor: The worker has the freedom to their method of working, subject to any terms laid out in any contracts and agreements

INDEPENDENCE

Employee: The worker is not operating independently of your business

Contractor: The worker is operating their own business independently of your business