Employee vs Contractor

Who really is an employee?

If you are paying a contractor who is later deemed to be an employee by the Tax Office, the Tax Office can make the directors liable to pay PAYG Withholding for up to 5 years and these payments will not be tax deductible.

Deciding whether a Master/Servant relationship exists is the key to determine whether you have engaged a contractor or an employee.

It is up to the employer to decide whether a person is an employee or a contractor.

If an independent contractor relationship exists, tax does not need to be withheld; however tax must be withheld from the remuneration of an employee. The existence of a right to control how, where, when and by whom particular work is to be carried out, points very strongly and usually conclusively to the employee status.

A contract which is, in reality, an attempt to disguise what is really a Master/Servant relationship will not avoid the requirement for tax to be withheld.

The Tax Office’s Employee/Contractor on-line decision tool can be used to help you make the determination of employee or contractor.


Employee/Contractor on-line decision tool


The decision tool is designed to help employers understand whether their individual workers are employees or contractors in order to comply with their tax and super obligations.

It is not designed for situations where an employer enters into an agreement with a company, partnership or trust, or obtains workers through a labour hire firm.

Please call us if you wish to discuss.


Anthony Berkman

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