When you bring on help, one question has bigger consequences than most people realise: is this person an employee or a contractor? Getting it wrong exposes you to back payments, penalties, and unpaid super, so it's worth understanding.
It's not just what the contract says
You can't make someone a contractor simply by calling them one or having them invoice you. The ATO and the courts look at the actual working relationship, not the label. Someone treated like an employee in practice is an employee, regardless of the paperwork.
What they look at
The factors include how much control you have over how the work is done, whether the person can delegate the work to someone else, whether they take on commercial risk, whether they provide their own tools, and whether they're running their own business or simply working in yours. No single factor decides it, it's the overall picture.
Why it matters so much
If you treat a genuine employee as a contractor, you can be liable for the super you should have paid, PAYG you should have withheld, and potentially penalties and leave entitlements. These bills can reach back years and add up fast.
Super can apply to contractors too
Even some legitimate contractors are entitled to super if they're paid mainly for their labour. This one catches a lot of businesses out.
The bottom line
The employee versus contractor line is one of the easiest ways for a growing business to accidentally create a large liability. If you're bringing someone on and you're not certain which category they fall into, it's worth checking before the first payment, not after a review.
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