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Contractor or employee?


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The Closing Loopholes Act 2024 has redefined employers’ obligation to disprove sham contracting. Effective 27 February 2024, employers who have incorrectly classified an employee as an independent contractor may be penalised for sham contracting, unless they can show that they "reasonably believed" the contract of employment was a contract for services.

In addition, effective no later than 26 August 2024, independent contractors will have the right to challenge unfair contracts. There will be minimum standards for ‘employee-like’ workers, and independent contractors who earn less than the contractor high income threshold, including employee-like workers, will be able to apply to the FWC if they think their services contract contains unfair terms. The contractor high income threshold is yet to be set.


If your business, organisation or health practice engages independent contractors, it is important to review the working arrangements regularly to ensure you are paying your workers their lawful entitlements.


An employee works in your business and is part of your business. An employee's minimum entitlements are set out in the National Employment Standards (NES) and awards. Employment contracts can provide further entitlements, but they can't be less than what's in the NES or any applicable award.


An independent contractor (a.k.a. contractor, sub-contractor or “subbie”) effectively runs their own business and operates under their own business name. They are responsible for their own business compliance and commitments such as insurance, PAYG, superannuation, workers compensation, ATO, GST, etc. Contractors do not receive paid leave and can be legally liable for the work performed under their contract.


Factors to consider:


Employees

  • Employees perform work under the direction and control of their employer. The employer generally controls working hours, work location and how work is done.

  • Employees carry no financial risk in relation to the business.

  • Work equipment, tools and supplies are generally provided by the employer, or a tool allowance is paid.

  • Employees are required to do the work themselves. For example, they can’t ask someone else to go to their workplace and do their work for them.

  • Permanent employees have an ongoing expectation of work. However, some employees may be engaged for a specific task or specific period or on a casual basis.

  • Employees work standard or set hours (unless they’re a casual employee, in which case their hours may vary from week to week).


Independent Contractors

  • Independent contractors have a high level of control over the work they perform, including their hours, work location and how they do the work. They are free to perform the task at the time of their choosing.

  • Independent contractors carry the risk for making a profit or loss on each task or job. They are usually personally responsible and liable for poor work or any injury sustained while performing the task. Independent contractors generally have their own insurance policy.

  • Independent contractors use their own equipment and resources, and don’t receive an allowance or reimbursement for the cost of the equipment.

  • Independent contractors can delegate or subcontract tasks to other people (dependant on contractors’ agreement).

  • Independent contractors are usually engaged for a specific task.

  • Independent contractors have the skill and ability to perform services as specified in their contract.

  • Independent contractors are paid via invoice arrangements for the result achieved, based on an hourly rate or price per service.

  • Independent contractors usually negotiate their own fees and working arrangements and can work for more than one client at a time.

  • Independent contractors can accept or refuse additional work.

  • Independent contractors do not necessarily work standard or set hours. Instead, an agreement is made between both parties regarding work hours to complete the specific task.


A reminder that under the Secure Jobs, Better Pay Act 2022, there are now limits to the use of fixed-term contracts. If your business, organisation or health practice uses fixed term or maximum term contracts, you should seek advice on whether these arrangements are lawful.


If you are unsure about how to interpret the working relationship between your business and your staff, you can check your workers’ circumstances against the ATO’s online decision tool or seek advice from WorkPlacePLUS.


For more information, please contact us today.




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