The distinction between an employee and an independent contractor is important, as the RMB Workplace & Employment Law Division explains.
Employees are entitled to a range of legal protections such as minimum wages, paid leave and superannuation contributions.
Contractors, on the other hand, are generally engaged to provide services through their own business and are usually responsible for their own tax, insurance and workplace arrangements.
Because obligations to employees can be significant, disputes sometimes arise about whether a worker has been correctly classified. Historically, Australian courts applied what is often referred to as the “multi-factor test” - examining a number of indicators about the working relationship to determine whether someone is working in their own business or as part of another person’s business.
Some of the commonly considered indicators include:
- Control: Employees are typically subject to direction about how, when and where work is performed. Contractors generally have greater independence in how they complete a task.
- Hours of work: Employees often work set or regular hours, while contractors are usually engaged to complete a particular job within a certain timeframe.
- Expectation of ongoing work: Employees commonly have an ongoing expectation of work, whereas contractors are usually engaged for specific projects or services.
- Financial risk: Employees do not bear the financial risk of the business. Contractors may make a profit or loss depending on how efficiently they complete the work.
- Tools and equipment: Employees are often provided with the tools or equipment needed to perform their role. Contractors will commonly provide their own.
- Method of payment and tax: Employees are usually paid wages or salary with tax withheld by the employer. Contractors generally invoice for their services and manage their own tax obligations.
Recent High Court decisions, including Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd and ZG Operations Australia Pty Ltd v Jamsek, have emphasised that where the relationship is governed by a comprehensive written contract, the rights and obligations set out in that contract will play an important role in determining whether a worker is an employee or contractor.
It is also worth noting that superannuation obligations can arise even where a worker is engaged as a contractor. The distinction between employees and contractors can be complex. If you are unsure about how your working relationship is classified, you can obtain advice about your specific circumstances from one of our expert employment lawyers.
If you are unsure about your status or need advice about a working arrangement, your first step should be to contact our office to arrange a free consultation. You can contact us by by phone or our 'Ask a Question' tool on our website.