You may need extra hands when growing your business, but should you hire an employee or engage a contractor?
Both options have pros and cons, and the right choice depends on your business needs, budget, and compliance requirements
Hiring an Employee
Legally, an employee is someone who works within your business, carrying out their duties as a representative of the company. Employees operate under a contract of employment, which defines their rights and responsibilities.
To avoid confusion, trainees, apprentices, laborers, and trades assistants are always considered employees. This means they are entitled to key benefits such as paid leave and superannuation.
Pros:
- More control over work hours and tasks.
- Employees contribute to long-term business growth.
- Helps build a stable, committed team.
Cons:
- Payroll tax and superannuation obligations.
- Additional costs include paid leave, workers’ compensation, and training.
- Less flexibility in adjusting workforce size.
For example, Lisa owns a café and needs a fulltime barista to maintain service consistency. Hiring an employee ensures regular availability and builds rapport with customers.
Engaging a Contractor
Contractors are independent workers who provide services under an agreement. They often use their own tools and set their own schedules.
Pros:
- Greater flexibility – engage them as needed.
- No obligation to pay super (unless required to do so under super laws by certain conditions).
- No leave entitlements, reducing costs.
Cons:
- Less control over how work is done.
- Potential risks if misclassified (contractors treated as employees).
- May have higher hourly rates than employees.
For example, James runs an IT consultancy and hires a contractor for a short-term project. This allows him to scale his workforce without long-term commitments.
