Contractor or employee: Which are you?

Dave Adams • March 3, 2021

With COVID-19 having a significant impact on traditional employment, many people are working as a contractor for the first time either by choice or necessity. It’s not just a lifestyle decision; from the tax and superannuation perspective, there are important differences between being an employee and a contractor.

For employers, you also need to recognise the potential for the ATO to impose significant penalties for failing to meet your obligations for tax and super payments if you incorrectly categorise an employee as a contractor.

Contractor or employee?

Deciding if you are a contractor or an employee can be complex, but a key distinction is that an employee works in the business while an independent contractor runs his or her own business.

Contractors are self-employed and engaged to undertake a specific task at an agreed price, usually over a set period. They can choose their own hours and must pay for their own insurance, sick leave, holidays and super contributions.

Although COVID-19 has seen many employees working from home and claiming tax deductions for their home office running expenses, they remain an employee.

On the other hand, if you’ve been made redundant and have begun offering services to a range of businesses from your home office, you are likely to be a contractor.

How to tell an employee from a contractor

The table below outlines six factors that, taken together, determine whether a worker is an employee or contractor for tax and super purposes.

Employee Contractor
The worker can’t delegate the work or pay someone else to do it. The worker can delegate the work or pay someone else to do the work.
The worker is paid for the time worked, at a price per item or activity, or via commission. The worker is paid for a result based on a quote, calculated using hourly rates or price per item to work out the total cost of the work.
The business provides all or most of the equipment, tools and other assets required to complete the work; or the worker provides them but the business provides an allowance or reimburses the cost. The worker provides all or most of the equipment, tools and other assets required to complete the work and doesn’t receive an allowance or reimbursement for this.
The worker takes no commercial risks; the business is legally responsible for the work and liable for the cost of rectifying any defects. The worker takes commercial risks, is legally responsible for their work and liable for the cost of rectifying any defects.
The business has the right to direct the way in which the worker does the work. The worker has freedom in the way the work is done, subject to the specific terms in any contract or agreement.
The worker is not operating independently of the business and is considered part of the business. The worker operates their business independently, performs services as specified in the agreement and is free to accept or refuse additional work.

Source:  ATO website

Recognising a contracting arrangement

Even if you hold an Australian Business Number (ABN) or a registered business name, you are not automatically a contractor. Being paid after submitting an invoice makes no difference either.

The length of a project or how regular the work is are also immaterial to your employment status. Both employees and contractors can be used for casual, temporary, on-call or infrequent work.

Both employers and contractors can check whether a proposed work arrangement is legally deemed to be employment or a contract using the ATO’s Employee or contractor decision tool.

Avoiding tax and super responsibilities

Under current legislation it’s illegal to make misleading statements to an employee to try to persuade them to take on a contract arrangement. You are also not permitted to dismiss or threaten to dismiss an employee so you can re-hire them as a contractor.

Arranging for an employee to sign a formal document stating they are a contractor will not override the true employment relationship – or your tax and super obligations for them.

If you would like help understanding and complying with your tax and super obligations as either a contractor or employer, contact us today.

Do you know how your super is performing?

By Nikki Ashurst • November 2, 2026
Many Australians don't know how their super fund has performed or what it invests in. Are you one of them? Here's what to check and why it matters. Do you know how your super fund performed over the last two years? Many Australians don’t and are working towards their financial future without fully understanding one of their most important assets and without a clear plan for how their super may support them in retirement. That's not surprising, as many people view super as something that should run quietly in the background while they're busy with careers, families and everything else that life throws at them. But when you’re not sure what’s happening behind your balance, it’s harder to know whether you’re on track, whether your current approach reflects your goals or what opportunities might be available to help you make the most of what you’ve built so far. Your super isn't sitting in an account, it's invested Super is invested by a fund on your behalf across a mix of assets, with those investments working to grow your balance over time. Those include: Shares Ownership in Australian and international publicly listed companies. Their value can rise and fall, sometimes substantially over short periods but shares can provide capital growth over the long term. Property and infrastructure Real assets like office buildings, shopping centres, airports and energy networks. They can produce income and don't always behave in the same way as share markets, helping diversify investment holdings. Fixed interest and bonds Lending to governments and companies in return for interest. They can provide regular income and be steadier than shares, although returns and risk vary depending on the investment. Cash Generally, the most stable and lowest risk investment type. It can provide stability and faster access to money but typically offers lower longer term return potential. The investment option you choose determines the mix of assets held in your super based on your risk appetite. Most super funds offer options from conservative to high growth. If you’re young, a growth option with a higher exposure to growth assets like shares could offer higher returns over time – but it also comes with higher risk. As retirement nears, you might want to consider a more conservative approach with more defensive assets, like bonds for example to protect your savings. If you've never made a choice, you're probably in your fund's default option, which is designed to suit a broad membership. It’s worth knowing whether the mix you're in matches your circumstances and goals, including how far you are from retirement. Why performance alone is not a true comparison If you're thinking about how your super compares, returns are often where people start. The trouble is that a return figure means nothing without context: What it's being compared to Growth and conservative options invest differently and with different levels of risk. Compare like with like or the comparison may not be genuine. The comparison period A single year can be heavily influenced by short term market conditions. Super is measured in decades, so five, seven and ten year returns tell you far more about whether a fund is consistently doing its job, albeit not a predictor of future performance. Fees and tax Published returns should reflect investment fees, costs and tax but administration fees may be charged separately from your balance. Two funds quoting the same return can leave you in meaningfully different places once all fees are accounted for. Then there are the things that returns can't show you at all. For example, what insurance is attached to your account and what it's costing you, whether the fund offers guidance, tools and advice or simply sends a statement once a year. Another consideration maybe the level of support available when you need it. When comparing funds, it's worth looking at the full picture, including performance, fees, investment options, retirement support and member benefits. What today’s decisions mean tomorrow To understand how your super stacks up, start here: Find your investment option It's on your annual statement and in your online account. Look at what's in it Your fund publishes the asset allocation (shares, cash etc.) for each investment option. Check the long-term return for that option Focus on five and ten year returns, not just last year and compare them with equivalent options. Understand the total cost Add together administration fees, investment fees and insurance premiums as an annual dollar figure. Comparing super is about working out which option will perform best for you. Before you jump in, it’s worth understanding what's behind the numbers so you can make decisions based on more than a headline return. Knowing where you stand is the first step A super balance tells you where you are today. Understanding how your super is invested, how it compares and whether it's aligned with your goals helps show whether you're heading in the right direction. Source: MLC The information in this article does not take into account your objectives, needs and circumstances. We recommend that you obtain investment and taxation advice specific to your investment objectives, financial situation and particular needs before making any investment decision or acting on any of the information contained in this document. Subject to law, Capstone Financial Planning nor their directors, employees or authorised representatives gives any representation or warranty as to the reliability, accuracy or completeness of the information; or accepts any responsibility for any person acting, or refraining from acting, on the basis of the information contained in this document. Principal Wealth Management Pty Ltd trading as BMO Financial Solutions ABN 53 109 336 601 is a Corporate Authorised Representative (CAR 277821) of Capstone Financial Planning Pty Ltd ABN 24 093 733 969 Australian Financial Services Licence (AFSL) No. 223135.

The SMSF landscape is changing

By Jude Schofield • October 7, 2026
More Australians are choosing to take direct control of their retirement savings by establishing a self-managed super fund (SMSF) and according to the SMSF Association, Aussies now see their super as an important part of building and managing their overall wealth.