Employee or independent contractor?

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We are often asked by clients “can I engage someone as a contractor rather than having a formal employee/employer relationship?”

What is the difference between an employee and an independent contractor or someone on a contract for services?

The relationship between an employer and employee is a contract of service whilst the relationship between an employer and an independent contractor is a contract for service.

The difference is not always clear, but in simple terms an employee is directed by an employer and carries out their work as directed. On the other hand, an independent contractor owns and operates their own business and has a significant level of control of how they work and when they work.

It is important to note that you must get this right and there are significant penalties, under the Fair Work Act 2009 if you misrepresent the relationship. It is referred to as sham contracting.

Employment Contracts

An employment contract is basically an agreement between an employer and employee that sets out terms and conditions of employment. It can be written or oral.

It must not provide for less than the legal minimum set out in:

  • The National Employment Standards (NES)
  • Awards, enterprise agreements or other registered agreements that may apply.

The employment contract  cannot  make an employee worse off than their minimum legal entitlements.

Independent Contractor

Independent contractors provide agreed services under a contract for those services, and they usually negotiate their own fees and working arrangements. 

Generally, an independent contractors contract for service will include the following:

  • Work Description and Schedule.
  • Payment Terms
  • Termination conditions
  • Restraints
  • Dispute Resolution provisions.

What do you look at to determine if it is a contract of service or a contract for services?

Generally, when a regulatory body, tribunal or court will consider this it will look at the following:

  • The level of control over how and when the work is done
  • Hours of work and the ability to complete the tasks in the time required
  • Is this one of piece of work, is it ad hoc and/or is there an expectation of ongoing work
  • Who assumes the financial risk?
  • Are the tools and equipment provided or are you expected to provide them?
  • What is the method of payment such as hourly rates etc.
  • Are there annual leave and sickness entitlements?
  • Can you work for other businesses or companies?
  • Ability to work for other companies
  • What is the ability to delegate or subcontract to others?

The Fair Work Ombudsman at this link provides the following very helpful table when considering the nature of the relationship.

The Australian Taxation Office also provides a very helpful guide as well here.

It is important to understand your obligations both from a Fair Work perspective and from a taxation perspective as there are significant fines and penalties that can be imposed if you get the relationship wrong.

How can FC Lawyers assist?

At FCL Lawyers we have over 25 years’ experience helping small to medium size businesses and employees in getting their legal obligations right when considering the nature of the work relationship.

Contact our team today to discuss your legal needs.    

The information provided in this article is for general information and educative purposes in summary form on legal topics which is current at the time it is published. The content does not constitute legal advice or recommendations and should not be relied upon as such. Whilst every care has been taken in the preparation of this article, FC Lawyers cannot accept responsibility for any errors, including those caused by negligence, in the material. We make no representations, statements or warranties about the accuracy or completeness of the information and you should not rely on it. You are advised to make your own independent inquiries regarding the accuracy of any information provided on this website. FC Lawyers does not guarantee, and accepts no legal responsibility whatsoever arising from or in connection to the accuracy, reliability, currency, correctness or completeness of any material contained in this article. Links to third party websites or articles does not constitute any endorsement or approval of those sites or the owners of those sites. Nothing in this article should be construed as granting any licence or right for you to use that content. You should consult the third party’s terms and conditions of use in relation to any third-party content. FC Lawyers disclaims all responsibility and all liability (including liability for negligence) for all expenses, losses, damages and costs you might incur as a result of the information being inaccurate or incomplete in any way. Appropriate legal advice should always be obtained in actual situations.


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