Posted by: Angelo Venardos | Date: 1 December 2011
I have recently had a number of clients query as to whether they can hire people as a contractor rather than a employee. The difference is substantial and the consequences are significant if not done properly.
To give you an indication of the legal difference between an employee and a contractor I advise as follows:
An employee is generally a person who is employed under a “contract of service” to provide his or her personal service to the employer, usually either for a fixed or indefinite period of time. An employment relationship can be easily identified provided that most components of the relationship are significantly controlled by the employer.
This extends to what work is being performed by the employee and the manner in which it is being performed. Often, the employer also controls where and when that work is performed by the employee. The employer is also responsible for the payment of leave and superannuation payments. In summary, the employer has a significant amount of control over the employee on a daily basis.
A checklist of indicators in an employee/employer relationship include:
A contractor (C) is engaged under a “contract for service” to achieve a particular result, or to complete a particular task. When preparing a Contractor Agreement the focus is placed more on the particular outcomes which the contractor is to achieve, rather than on the nature of the relationship between the contractor and principal. The reason for this is that the principal has very little control over the manner in which the contractor goes about delivering the intended outcome, provided that the intended outcome is ultimately achieved.
Unlike employee/employer relationships, the contractor is not necessarily required to individually provide the services personally. The contractor can engage subcontractors to work with them to achieve the intended outcome.
A checklist of indicators for a principal and contractor relationship include:
You are at considerable risk if you enter into a contractor relationship with someone who is actually an employee.
Your risk includes:
(a) The requirement to pay superannuation obligations;
(b) The requirement to pay PAYG obligations;
(c) The risk of not having appropriate WorkCover insurance in place and therefore being sued if the employee is injured;
(d) Workplace Health and Safety issues.
Please do not hesitate to contact me should you wish to discuss this very important issue.