Management Consulting - What type of employee do you need for your small business?

What Type Of Worker Does Your Small Business Need?

Making the decision to hire staff is one of the most important decisions any business can make. Done well, they will become an indispensable asset to the long-term growth of your business. Done poorly, you run the risk of being outpositioned by emerging trends your staff cannot adapt to, outpaced by demand your staff cannot meet, and outrun by competitors who didn’t leave their hiring decisions to chance. It is vitally important to carefully consider the kind of employee you need with respect to the needs of your business. In this article we cover these fundamental considerations and what implications this will have for you.

Assessing Business Need

The first consideration that must be made in determining the kind of employment opportunity you offer is how long you think you’ll need the person for. Will this person need to be an ongoing part of your business operations, or, will they only be required to provide specialised skills for a set period of time? This distinction is an important one for small business owners to make as it carries with it a range of differing taxation, superannuation and other entitlement implications. 

Differing Employment Arrangements

Based on the required need of the business, employment can be offered by way of a:

  • Contractor Arrangement – who provides services to your business, is registered via their own Australian Business Number (ABN) and invoices you for their work, rather than receiving wages. A contractor also:
    • carries their own insurance
    • can work for multiple organisations at one time
    • has the ability to subcontract their work to others
    • uses their own equipment and/or works from their own base
    • is hired until the completion of a set task
  • Labour Hire Arrangement – where the employment agency employs the worker and outsources them to you for an agreed period. Under this arrangement:
    • You pay the agency and they cover the worker’s entitlements
    • You pay the agency a commission, or finder’s fee
    • You can hire people at short notice for short-term or long-term projects
  • Direct Employee Arrangement – where an employee serves in your business, and performs their work as a representative of your business. An employee:

Work Factors That Distinguish A Contractor From An Employee

Determining whether you need an employee or contractor can also be determined by reviewing this checklist and reviewing each factor against the legal rights and obligations that arise from the contract you enter into with your worker.

Factors Employee Contractor
Control Control: your business has the legal right to control how, where and when the worker does their work. Control: the worker can choose how, where and when their work is done, subject to reasonable direction by you.
Integration Integration: the worker serves in your business. They are contractually required to perform work as a representative of your business.


Integration: the worker provides services to your business, performing work to further their own business. They may present themselves as part of your business.
Payment Mode of remuneration: the worker is paid either:

  • for the time worked
  • a price per item or activity
  • a commission.


Mode of remuneration: the worker is contracted to achieve a specific result, and is paid when they have completed that result, often for a fixed fee.


Delegation Ability to subcontract or delegate: the worker must perform the work themselves and cannot pay someone else to do the work for them. Ability to subcontract or delegate: the worker is free to delegate to others who the worker will pay to complete the work on their behalf.
Provision of tools Provision of tools and equipment: your business provides all or most of the equipment, tools and other assets required to complete the work, or the worker provides all or most of the tools, but your business provides them with an allowance or reimburses them for expenses incurred. Provision of tools and equipment: the worker provides all or most of the equipment, tools and other assets required to complete the work, and you do not give them an allowance or reimbursement for the expenses incurred.

The work involves the use of a substantial item that your worker is wholly responsible for.

Risk  Risk: the worker bears little or no risk. Your business bears the commercial risk for any costs arising out of injury or defect in their work. Risk: the worker bears the commercial risk for any costs arising out of injury or defect in their work.


Employee or Contractor Indicia – Australian Taxation Office

What Are Your Tax And Super Obligations?

These obligations will vary depending on whether your worker is an employee or contractor.

For Employees For Contractors
  • withhold tax (PAYG withholding) from their wages and report and pay the withheld amounts to us
  • pay super, at least quarterly, for eligible employees
  • report and pay fringe benefits tax (FBT) if you provide your employee with fringe benefits.
  • they look after their own tax obligations, unless they don’t quote their ABN to you, or you have a voluntary agreement to withhold tax 
  • you may still have to pay super for if the contract is principally for their labour
  • you don’t have FBT obligations.


Your Tax And Super Obligation – Australian Taxation Office


Tax TIP – It’s illegal to wrongly treat an employee as a contractor. Seek advice if you are unsure if you got it right. Failing to do so could result in hefty fines. 


Find Out More

Ensuring you understand your employer obligations correctly the first time is essential not only to avoid fines, but also to protect your staff, your business and the relationship you share. To find out more about your legal obligations and responsibilities as an employer visit:

If you require further advice or bookkeeping and taxation assistance in meeting your employer responsibilities, contact SG Advisory today. Our experienced accountants will help you determine your business needs with strategies that are targeted towards the ongoing success of your business. Book your appointment today. 


Disclaimer: The information contained above is general in nature and should not be considered as personalised taxation or accounting advice. Please consult one of our experienced tax accountants as taxation law, regulations and the way they affect your business will differ from year to year.