Working as an employee is not the same as working as a contractor and tax implications are different for both. Imagine your employer has wrongly classified you as a contractor then you would be missing on a lot of benefits such as super, holiday pay, sick leaves, and much more. So, you must ensure that a correct classification is done to reflect whether you are an employee or a contractor. 

Here is how a contractor and employee are different in various ways. 

Basis of Difference 

Contractor 

Employee 

Business registrations 

As a contractor, you need to check your eligibility for ABN (Australian Business Number) and GST registrations and accordingly obtain the same. 

As an employee, you need to obtain a Tax File Number (TFN) and provide the same to the business you work for. 

Tax payments 

You are required to meet the tax liability that applies to your contract activities. Alternatively, the business can take out tax from the payments that are made to you if you have agreed for the same. 

The business withholds the tax from the salary and wages that are being paid to you. You need to provide TFN to your employer for the same. 

Record-keeping 

You must maintain records about your incomes and expenses relating to your business activities which include the invoices issued and the receipts or bills for the expenses incurred. 

There are certain expenses for which you can claim a deduction. You need to maintain the records to substantiate your claim. 

Lodgement of returns 

  • GST is required to be paid and the return has to be lodged if you are registered. 
  • If you’re registered for GST then you need to lodge Business Activity Statement (BAS) on periodic intervals.  
  • Based on your records, you have to lodge your tax return with the ATO and all schedules including the business and professional items schedule are to be filed. 
  • You need to lodge your tax return based on the information such as your payment summary and the income statement. 

Super  

The business with which your work is not responsible for making arrangements for your super plan. You need to manage the same yourself.  

The business that employs you makes contributions to the super plan and you can choose a plan that your employer makes the contributions in. 

Compensation and Benefits 

The only compensation that you receive is the contract price that is agreed with the business that you work for, one you raise the invoice.  

The amount may be paid entirely on after certain deductions based on whether your work meets the agreed standard or not.   

As an employee, you get the following payments and benefits: 

  • Salary or wages 
  • Insurance benefits and workmen compensation 
  • Leaves compensation 

Thus, you receive benefits in addition to the salary.