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Payroll

What is a Contractor? Definition

By QuickBooks Australia

Published on June 13, 2024

A contractor is an independent entity that supplies services, equipment, personnel, supplies, or goods. You may work with several contractors regularly, but they aren't necessary employees of your business. Rather, they work based on an agreed-upon contract for a specific task or a period of time.

Contractors work for themselves, negotiate contracts, have clients, and many contract other workers to assist them in their activities, enlisting subcontractors to handle all of the work they were contracted to perform.

A contractor agreement creates an outline for all of the materials or services expected, as well as detailed costs, warranty information, and contractor pay. To put it in a nutshell, a contractor is a self-employed individual another company enlists the services of.

Difference Between Contractors And Employees

As contractors are essentially business owners in their own right, they have terms and conditions different to your standard employee.

You set the schedule for standard employees, they adhere to your code of conduct, you onboard them, and provide them with benefits and salary packages. However, when dealing with contractors, you are essentially dealing only with contractor pay. They bring their tools, provide their insurance, deal with income tax, set their leave, and deal with their superannuation.

Contractors do not receive the same benefits your other employees may be entitled to. Contractors set their own schedules, and as long as they produce the products or services they aren't breaching their contract. Flexibility is one of the major attractions of independent contracting.

The Benefits Of Hiring A Contractor

Contractors carry their own insurance because they don't get paid for sick leave or in the case of accidental injury. If they have an accident or fall ill, they do not have employer coverage to fall back on. For contractors, the need for sickness, negligence, neglectful misrepresentation, and breach of duty coverage is worth the cost.

For employers, the benefit is they need only pay the contractor for services rendered. There is no need to work out a salary package and benefits or extend sick or holiday pay.

You will use a Tax File Number (TFN) for a standard employee, whereas a contractor will provide you with their Australian Business Number (ABN), sign an independent contract, and invoice you.

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The Pros And Cons Of Being A Contractor

The Pros

Contractor pay varies, but you can maximise your earning potential.
Independent contractors can set their hours and take control of their work.

The Cons

You do not receive salary packaging like traditional employees, which means you're on the hook for superannuation, etc.
You do not qualify for employee entitlements.

Unlike standard employees, independent contractors negotiate their fees. Learn more with our guide on how to become a contractor.

Managing Contractors In Your Business

If you aren't certain whether someone should be classified as an employee or an independent contractor, seek professional advice. Whether you employ 100 employees, a contractor, and two freelancers, or any combination of the three, QuickBooks Payroll Software powered by Employment Hero can make it simple.

And if you are a contractor, you can make use of contractor payroll software like QuickBooks Payroll to keep track of all of your business needs. Whatever your contracting arrangements are, reliable cloud payroll services will ensure you pay the right people at the right time, track their hours, manage payroll tax, and fulfil your financial year responsibilities to the ATO.

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What is a Contractor? Definition

Difference Between Contractors And Employees

The Benefits Of Hiring A Contractor

Grow Your Business with QuickBooks

The Pros And Cons Of Being A Contractor

The Pros

The Cons

Managing Contractors In Your Business

Related Articles

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