If you’re currently considering switching jobs - or even careers - you may have come across job ads for both full-time employment and fixed-term contracts. The roles described sound similar, with similar responsibilities and requirements - so what’s the real difference? And is one better than the other?
The short answer: it depends (yeah, we know; that’s never satisfying).
The long answer: choosing one employment structure over the other comes with its own wins and payoffs. Which one’s right for you will ultimately depend on your current situation, your career goals, and your values. Here’s why:
An Employee vs. An Independent Contractor
Let’s start with some quick bullet-points.
- An employee works for someone else’s business.
- They’re hired to perform specific tasks in an ongoing or open-ended capacity.
- In return, their employer will provide a salary, superannuation contributions, paid sick leave, paid annual leave, and other workplace benefits.
- Their employer is usually in charge of how, where, and when they work.
- Their tax obligations are handled by their employer.
- A contractor is a self-employed sole trader with an Australian Business Number (ABN).
- They’re hired by another business to deliver a specific task or outcome.
- Their contract will usually include a time frame, an end date, and an agreed price for their work.
- They tend to have more flexibility around their working hours and location.
- They have to calculate and pay their own taxes.
As a general rule, if you want stability, mentorship, and less administration, being an employee might be for you.
If you’re after flexibility, variety, and potentially higher pay, you might enjoy being a contractor more.
The Hnry office: Many of our employees are former contractors!
Being an employee
Stability: As someone who works for a business, an employee is guaranteed regular work, a regular income, superannuation contributions, sick leave, and annual leave. They typically have set duties, a set routine, and a set location of work as determined by their employer.
This regularity makes it far less stressful to plan holidays and take time off sick. Employers budget for a set amount of days off for their staff, so you can rest easy knowing you’ll still be paid while away from work.
Basically, short of an unexpected catastrophe (*cough* covid *cough cough*), an employee can generally expect the foreseeable future to be much like today.
Mentorship: Any workplace worth its salt will regularly invest in their employees. After all, a workforce that’s continually upskilling can only mean good things for a company’s bottom line.
As an employee, you’re generally encouraged to build relationships with stakeholders and mentors in your company. They may even pay for you to attend training courses and seminars, which you should definitely take advantage of. These working relationships, whether formal or informal, can help you learn new skills, explore different aspects of the business, even help you progress into a role with more responsibility.
If you’re just starting out in your career, or you enjoy structured career pathways and development, employment is the way to go.
Less administration: One of the best things about working for a business instead of running your own is that your employer will automatically calculate and pay your taxes for you. You can have peace of mind knowing that every cent of your income belongs to you, and you don’t need to set anything aside for the ATO.
Employers are also obligated to contribute to your Superannuation fund, making it easier for you to save for your retirement. Win!
If the only thing stopping you from becoming a contractor is calculating and paying your own taxes, we have good news! Hnry can automatically calculate and pay your taxes, and we’ll even lodge them for you at the end of the year.Find out more.
Less flexibility: Your employer has the right to decide how, when, and where you work. Although workplaces are becoming more and more flexible, your boss gets the final say on your hours and location. If you work for the same company for years, this might mean not being able to move cities due to your role, or worse, having to move cities for work when you don’t want to.
You’ll probably also be limited to working for just one company; there may even be stipulations in your contract that you can’t work for a competitor’s business should you decide to leave.
Your sick leave and annual leave is limited by company policy. The law requires all employers to provide certain minimums, but beyond that it’s up to the discretion of the business to approve any time off.
You’re also limited as to what you can and can’t claim as a tax deduction. If reducing your tax bill is a hobby of yours, it’ll be much harder to do it as a full-time employee.
Becoming a contractor
Flexibility: As a contractor, you’re technically your own boss. This means you have all the flexibility of a business owner: you can usually dictate your own hours, your location, and the tools you use to get the job done. If there’s a task in a project that you don’t want to do, you have the power to subcontract someone else to deal with it.
You can take as much time off as you want in between contracts - for example, working nine months of the year before taking a three month break. You can even spend time contracting in one country, and then find a new contract in a different country once that’s done. If you’re someone who loves to travel, it’s a pretty sweet deal. The world is your oyster (or insert metaphor of your preference).
Variety: Speaking of not sticking with one company, being a contractor allows you to test out different industries, work with different technology, and learn different ways of working. Each company you work for will no doubt teach you something new, and you can implement these lessons throughout your career.
If you work multiple contracts concurrently, you’ll automatically have a richer, more-layered experience than if you were in a permanent role. Contracting can place you in different teams in different businesses, and give you cross-functional insights you might have never discovered otherwise. A more holistic perspective is a powerful one.
Finally, contracting makes it easy to grow your professional network. You’ll meet new people at every workplace who can and will open new doors for you and your career.
Higher pay: Contractors are typically experts in their field, and can charge accordingly. If your skillset is in demand, you can earn more money contracting than if you were permanently employed. You’re also better placed to ride out economic downturns or periods of high inflation, as you can raise your rates as soon as your contract expires.
You also have more opportunity to claim tax deductions than a permanent employee would. If you’re careful and meticulous, this could result in thousands of dollars worth of savings in your tax bill!
If you have the skills, experience, and financial savvy, there’s no reason why you can’t make bank as a contractor.
More administration: While taxes for employees are almost entirely set-and-forget, research shows that contractors spend around 6 hours every week managing their tax and financial admin. Even worse, it costs them $370 a month on average - and this doesn’t even take into account how much their time is worth.
If you’re hoping the recruitment agency or company you’re working with will help sort your taxes, you’re unfortunately out of luck. In Australia, recruiters and companies usually pay their contractors the whole/gross amount, without setting anything aside for taxes. This means that as a contractor, you’re entirely responsible for:
- calculating and paying your own income tax,
- paying Medicare
- collecting and paying GST (if you earn over $75,000 a year in self-employed income)
- keeping records of business expenses you claim for at least five years
- calculating and making Student Loan/HELP repayments
- contributing to your Superannuation fund (some contracts include this as an added perk, but it’s always a good idea to contribute consistently!)
Good news! Hnry will take care of all this admin for you. For just 1% of your self-employed income, Hnry will calculate, pay, and lodge ALL your taxes. Find out more.
Taking the leap into contracting?
When it comes to choosing between permanent employment and a fixed-term contract, there’s no real wrong answer. You’re also not locked in to one style of employment for the duration of your career; different work styles might work better during different periods of your life.
Becoming a contractor can be very rewarding, but there’s more to it than simply signing a contract. For starters, you’ll need to set yourself up with a (free!) ABN before you begin trading.
Then you’ll need to make a few crucial decisions around services, pricing, and admin. But don’t panic; we’ve put together some handy guides to help you figure out:
- how to find contract work
- types of sole trader insurance
- what tools you should invest in
- how to plan for time off
- how to start investing!
Finally, there’s the tax and financial admin (our favourite subject). If you’re really curious, we do have a self-employed tax calculator that will give you a rough idea of what you’ll need to set aside for the ATO. But in all honesty, it’s a heck of a lot easier to just use Hnry.
No, really; Hnry was actually founded by two contractors who had had it up to here with tax brackets and spreadsheets. Now we’re a multi-award winning company that’s changing the game for self-employment (#humblebrag).
For just 1% of your self-employed income (capped at $1500), Hnry will automatically calculate, pay, and lodge ALL your taxes, including:
- Income tax
- Student Loan/HELP repayments
You can even set up automatic allocations which will send a set percentage of every pay to your Superannuation fund, savings account, charity of your choice, investment portfolio, friends and family, favourite dog on instagram - it’s completely up to you.
Oh yeah, and we also become your accountant, which means we’ll review your expenses in real time and lodge your income tax and BAS returns whenever they’re due.
Using Hnry means you can have all the higher pay, variety, and freedom of contracting, without the tax headache. Join today!