Employment Contracts vs Contractor Agreements: Why Getting It Wrong Can Cost You
Recently, I saw an employment contract that left me scratching my head. It said the role was full-time employment but then mentioned the person would need to invoice for their work. That’s a red flag. Mixing employment terms with contractor obligations isn’t just confusing it can be legally risky.
This kind of contract soup is more common than you’d think. Businesses trying to stay flexible or cut corners sometimes blur the lines between employees and independent contractors.
Let’s break down the difference.
Employment Contracts:
If you’re signing an employment contract, you’re an employee. That means:
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You’re on payroll.
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The company withholds taxes.
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You're covered by leave entitlements (annual, sick, parental).
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You follow set hours or regular work patterns.
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You use company tools, follow company processes, and often report to a manager.
Employers carry obligations: superannuation, workers compensation, performance management process and unfair dismissals and minimum wage compliance, just to name a few.
Contractor Agreements:
Independent contractors are external providers. They’re not part of your business, even if they work with you closely. As a contractor, you:
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Send invoices.
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Handle your own tax and super.
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Choose how and when you work (to an extent).
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Supply your own equipment.
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Usually work with more than one client.
If you need more information on the differences you can find a clear breakdown of the differences on the Australian Taxation Office website.
Where It Goes Wrong: The Hybrid Mess
That contract I saw? It said:
"You’ll be a full-time employee… and you’ll invoice us monthly."
You can’t be both — legally or practically. If someone is working full-time under the direction of a manager, using company tools, and relying on that job for income, they’re probably an employee, no matter what the paperwork says.
Courts and regulators don’t just look at what the contract says. They look at what actually happens day-to-day.
Why This Matters
Getting this wrong can backfire. For employers:
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You could be liable for unpaid entitlements going back years.
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You might face fines for sham contracting.
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You risk disputes, audits, and reputational damage.
For workers:
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You might miss out on sick leave, super, or even proper income tax deductions.
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You could be left unprotected if something goes wrong.
Keep It Clear. Keep It Compliant.
If you're the one writing the contract — whether you're a business owner or hiring manager, make sure you understand what the terms actually mean. If you're engaging someone as a contractor, you should have an agreement/ contract for services which outlines various elements of your arrangement e.g. intellectual property ownership etc
We’re seeing more and more small businesses send out contracts that blur the line between employee and contractor. That creates confusion, risk, and often ends in disputes. Don’t assume templates or copied clauses will cover you. Make sure you structure it properly from the start.
When in doubt, get legal advice. A solid contract protects both sides.
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