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Contractor or employee?



If your business, organisation or health practice engages independent contractors, it is good practice to review the working arrangements regularly to ensure compliance.


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.


The distinction between contractors and employees is not always clear-cut. Courts look at the relationship, and there is no single indicator to determine if a person is a contractor or an employee, which creates added complexity.


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.


The Australian Tax Office (ATO) is clamping down on businesses that force workers to be independent contractors with so-called sham contracts as a way of avoiding paying an employee’s statutory entitlements. If the courts find that you have classified your staff incorrectly, they may impose a penalty of up to A$12,600 for individuals and A$63,000 for corporations per contravention.


✴️ Changes to workplace laws: FIXED-TERM CONTRACTS

From 7 December 2023, under the Fair Work Legislation Amendment (Secure Jobs, Better Pay) Act 2022, there will be limits to the use of fixed-term contracts. Instead of employees being on rolling fixed-term contracts, such as for six months or a year, employers will only be able to offer a maximum of two consecutive contracts or contracts that span two years — whichever of the two is shorter. If your business, organisation or health practice uses fixed term or maximum term contracts, you should consider whether those contracts are necessary, and if so, seek advice on whether long term or back-to-back arrangements will be lawful once the changes take effect.


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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