The Employee vs Contractor Decision in Allied Health: What Every Provider and Clinician Should Know
Choosing between engaging employees or contractors is one of the most important workforce decisions in Allied Health. Whether you're a business owner building a sustainable team or a clinician weighing up your next career move, understanding the trade-offs is essential.
This guide explores the pros and cons of each model, explains key compliance risks like sham contracting, and offers practical advice to help you decide what works best based on your goals, structure, and stage of business.
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Understanding the Models
In Australia, an employee is typically paid through payroll, with tax, superannuation, and entitlements like sick leave and annual leave handled by the employer. They work within the business's systems, policies, and supervision structure. Employees are generally considered part of the organisation and are entitled to various benefits, protections, and training opportunities.
A contractor, on the other hand, is an independent service provider. They hold their own ABN, are responsible for their own tax and super, and typically invoice the business for services. Contractors have more autonomy, but also more responsibility, such as arranging their own professional development, covering insurances, and dealing with their own cancellations.
The Fair Work Ombudsman and the ATO both stress that it’s not enough to label someone a contractor. If the nature of the work, control, and relationship aligns with employment, you could be at risk of sham contracting (we’ll cover that shortly).
Disclaimer: This blog provides general information only and does not constitute legal or HR advice. Please consult a qualified professional to assess your specific obligations and risks.
Pros and Cons for Clinicians
Employee Model
Pros:
Paid leave (sick, annual, parental)
Superannuation paid by employer
Job security and predictable income
Structured supervision and support
Access to professional development and team culture
Cons:
Less flexibility with hours and caseload
Lower hourly rate compared to contracting
Typically restricted to working for one provider
Being employed is often a great choice for clinicians early in their careers or those who value stability and mentorship. It allows clinicians to embed in a supportive team, benefit from structured learning, and focus more on client care than administration.
Contractor Model
Pros:
Higher hourly rate
Full control over schedule and work location
Flexibility to work across multiple businesses
Greater autonomy in managing caseload and services
Cons:
No paid leave or public holidays
Must manage tax, super, insurance, and compliance
No built-in team support or supervision
Unpaid time for admin, training, or cancellations
For experienced clinicians, contracting can offer freedom and financial upside. It can also be appealing for parents, part-time workers, or those building a portfolio career across different settings.
Pros and Cons for Employers
Employee Model
Pros:
Stronger integration into systems, culture, and team
Easier to provide consistent supervision and support
More reliable availability and caseload stability
Greater influence over client experience and processes
Cons:
Higher ongoing costs (wages, super, leave liabilities)
Greater compliance and HR responsibilities
Less flexibility to scale up/down quickly
Employees contribute to a stronger culture and long-term team cohesion. They’re often more invested in the organisation’s mission and are easier to align to strategic goals.
Contractor Model
Pros:
Scalable and flexible workforce model
No leave, super, or PAYG liabilities
Great for short-term, regional, or overflow coverage
Faster onboarding and exit process
Cons:
Risk of sham contracting and misclassification
Less consistency and loyalty
May not fully adopt your systems or values
Typically higher hourly rates
Contractors allow providers to respond quickly to demand spikes, trial new services, and reduce fixed costs. However, over-reliance can lead to cultural fragmentation or quality inconsistency.
📅 Looking to review your current workforce model? Book a free 30-minute strategy call at https://www.conwaygroup.com.au/appointments
Understanding the Real Cost Behind Each Model
Many businesses assume that contractors are more affordable, but that’s not always the case. I break this down in more detail in my related blog: Why Don’t I Get Paid More? Understanding Pay, Profit, and Margin in Allied Health.
Employees cost more than their hourly wage. You also need to factor in:
Superannuation (11.5% and increasing to 12% in July)
Leave entitlements (annual, sick, public holidays)
Payroll tax (if applicable)
Training and onboarding time
Admin and supervision overheads
Employee insurance and workers compensation
A good rule of thumb is to apply a 1.5x multiplier to the base salary to estimate total cost. For example, a clinician on a $100,000 salary may actually cost the business ~$150,000 annually.
Contractors, while more expensive per hour, don’t carry entitlement liabilities. But over time, their higher rates and less predictable availability can impact profitability, especially when scaling. Many providers also underestimate the time needed to manage contractors, onboard them to systems, and coordinate client handovers.
Key takeaway: Contractors may be cost-effective short term, but employees are often more efficient and sustainable long term if well supported.
Benefits of Contractors for Scaling and Startups
Contractors offer key advantages when:
Launching a new service line (e.g. new disciplines or new funding streams)
Expanding into a new region or community
Covering short-term demand or waitlist spikes
Starting a new business without locking in fixed costs
Because contractors can be onboarded quickly and don’t create leave liabilities, they’re often ideal during periods of experimentation or high uncertainty.
Startups often begin with contractors to minimise financial risk while testing the market. Contractors can be engaged on flexible terms and quickly scaled up or down based on client demand, which is invaluable in the first 6-12 months of operation.
Should You Pay Super to Contractors?
Yes — in some cases. Even if a clinician is invoicing you as a contractor with their own ABN, you may still be legally required to pay superannuation.
According to the ATO, if a contractor is:
Paid mainly for their personal labour or skills (i.e. not for supplying equipment or a broader business service), and
Cannot delegate the work to someone else (i.e. you’ve hired them specifically, not their business)
— then they are considered an “employee for superannuation purposes.”
This rule applies even if:
The contractor works under an ABN
You have a signed contractor agreement
They invoice you rather than being on payroll
The ATO’s view is that the substance of the relationship is what matters — not just the labels used in contracts.
Example:
If you engage a sole trader Speech Pathologist to deliver sessions directly to your clients, and they can’t send someone else in their place, you are likely required to pay super — even if they’re a contractor in every other sense.
What You Need to Do:
Refer to the ATO website: Employee or independent contractor to assess each arrangement
Seek HR or legal advice if you’re unsure
If super should be paid, you must pay it to their nominated fund quarterly — just like you would for an employee
Failing to meet this obligation can result in:
Backdated super payments (plus interest)
Superannuation Guarantee Charge (SGC)
Administrative penalties
This is one of the most common compliance traps for Allied Health businesses using contractors — especially when you scale.
TL;DR: If they’re doing the work personally and can’t subcontract it, you may owe them super — regardless of what your agreement says.
Refer to the ATO website: Super for independent contractors
Sole Traders vs Pty Ltd Contractors
In Allied Health, most contractors operate as sole traders (ABN only). Others may establish a Pty Ltd company.
Sole traders:
Easier and cheaper to set up
Still carry sham contracting risk if work structure mirrors employment
Pty Ltd companies:
Offer a layer of separation and lower risk of misclassification
May have their own insurance, compliance, and subcontracting
Seen as more independent in the eyes of regulators
However, even Pty Ltd contractors can be classified as employees if the working relationship isn’t structured correctly. It’s about behaviour, not the business name on the invoice. If you’re providing fixed rosters, mandatory supervision, and team integration, the risk of reclassification remains.
Sham Contracting: A Major Risk
Engaging someone as a contractor but treating them like an employee can breach the Fair Work Act.
Red flags include:
Fixed hours and rosters
Mandatory team meetings or supervision
Tools, uniforms, or systems provided by the business
Contractor cannot subcontract or work elsewhere
Penalties include:
Back pay for leave, super, and overtime
Fines of up to $93,900 per breach
Eligibility for unfair dismissal claims and protected entitlements
To avoid sham contracting, businesses must align contracts, behaviour, and expectations with the nature of the engagement. This includes documenting flexibility, independence, and non-exclusive relationships in writing and in practice.
Important: Always seek professional HR or employment law advice before engaging or reclassifying staff. Misclassification can lead to serious penalties.
Impact on Client Experience
The workforce model you choose doesn’t just affect staff — it impacts clients too.
Employees tend to offer more stability, support, and consistency. With structured supervision and more alignment to team values, client outcomes often benefit. Employees are also more likely to stay with a provider long-term, supporting stronger therapeutic relationships.
Contractors may be less available for long-term engagement or less involved in service development. Some clients value continuity and culture, especially in complex or trauma-informed care. If a contractor leaves suddenly, it can lead to service disruption, loss of rapport, and additional admin burden.
Client experience should be a key consideration in your workforce strategy. It’s not just about cost and compliance—it’s also about outcomes.
Transitioning Between Models
If you’re shifting from a contractor-heavy workforce to an employed team (or vice versa), plan carefully.
Communicate clearly and early with your team
Review contracts, entitlements, and transition plans
Expect some cultural shifts or pushback
Some businesses transition contractors into employee roles by offering attractive packages, flexible terms, and a clear explanation of the long-term benefits. Others retain a hybrid model, using contractors for overflow and employees for core services.
Transparency is key. Abrupt changes without consultation can damage trust and retention.
A Simple Framework: Contractor vs Employee
Ask yourself:
Am I prioritising short-term delivery or long-term growth?
Do I need full integration or flexible coverage?
Do I have the systems to manage compliance and supervision?
Can I offer team culture, supervision, and retention strategies?
Use this as a regular check-in as your business evolves. The right workforce mix may change as you grow.
Final Thoughts: No One-Size-Fits-All
The right model depends on your goals, your systems, your clients, and your stage of growth. For clinicians, it also depends on lifestyle, risk appetite, and support needs.
There are excellent clinicians and businesses using both models successfully. The key is to choose with intention — and know your risks.
Workforce planning is never set-and-forget. It requires continuous reflection, realignment, and responsiveness to your environment.
🚀 Need help evaluating your workforce model or planning your next hire? Book a free 30-minute strategy call at https://www.conwaygroup.com.au/appointments
