A contractor (or independent contractor) is a person or business that provides services to your business but is not an employee. Contractors invoice for their work rather than being paid wages.
The distinction between contractors and employees is one of the most important classifications in business - it affects tax obligations, insurance requirements, employment law compliance and bookkeeping treatment. Contractors operate their own business, control how and when they work, use their own tools and equipment, bear their own financial risk and can work for multiple clients simultaneously. They issue invoices for their services and are responsible for their own tax obligations, superannuation/pension and insurance. Employees, by contrast, work under your direction, use your tools, receive wages with tax withheld and are entitled to employment benefits. Incorrectly classifying employees as contractors (sham contracting) carries serious penalties in most jurisdictions. From a bookkeeping perspective, contractor payments are recorded as expenses with no withholding required (provided they quote an ABN in Australia or equivalent). In the US, you must issue 1099 forms for contractor payments over $600. SortBooks correctly categorises contractor payments in Xero, separating them from employee-related expenses.
SortBooks helps with the bookkeeping behind contractor by connecting to your Xero account and using AI to suggest the right account for transactions sitting in catch-all accounts, learning from your own past coding. Instead of fixing contractor by hand, you review each suggestion, approve it, and SortBooks updates Xero, GST code included. Then ask the AI CFO about your numbers, using live Xero data.
Payroll is the process of calculating and distributing wages, withholding taxes, managing super/pension contributions and complying with employment tax obligations.
An expense is a cost incurred in the process of earning revenue. Expenses reduce your profit and are recorded on the profit and loss statement in the period they are incurred.
Tax compliance means meeting all your obligations to file tax returns, make payments and maintain records as required by your country's tax laws and tax authority.
Business structure refers to the legal form of your business entity. Common structures include sole trader, partnership, company, trust and cooperative.
Accounts payable (AP) represents the money your business owes to suppliers and vendors for goods or services received but not yet paid for. It is a current liability on your balance sheet.
Connect Xero, check the AI's suggestions and approve the changes. SortBooks updates Xero for you.