Tips For Distinguishing Independent Contractors From Employees

Independent Contractors vs Employees?

When an employer considers the cost of labour they may find they ask themselves, independent contractors vs employees? It is important to protect to distinguish between employees and independent contractors in order to protect your business.

For more information, please call us on 8410 9294 or send an email via this form.

To reduce costs such as wages, tax, superannuation and WorkCover levies, many businesses look to engage independent contractors rather than employees. However despite the best intentions of the business, workers are often incorrectly engaged as independent contractors, which exposes business owners to legal claims brought by the worker, the ATO, WorkCover and or Fair Work Australia.

Generally, an independent contractor will operate under a contract for services with a principal, whereas an employee operates under a contract of service with an employer.

There is no clear legislative definition for an independent contractor. The key factor in determining the working relationship is ‘control’.  Where a business retains control over how the work is performed, it is more likely that the relationship will be considered that of employment.

Other factors that assist in determining whether a worker is an employee or an independent contractor are as follows:

• Is the worker told how, when and where to do the job or task;
• Is the worker allowed to refuse work;
• Is the worker held out to be a representative of the business, i.e. is the worker required to wear a particular uniform or display a certain logo;
• Is the worker free to work for other businesses;
• Is the worker engaged for a particular task or is their engagement ongoing;
• Can the worker determine their rate of pay;
• Is the worker required to have their own worker’s compensation and public indemnity insurance;
• Is the worker performing work in the same way as employees of the business; and
• Prior to being engaged as an independent contractor, was the worker employed by the business.

It is important to note that irrespective of any title given to the working relationship, it is the substance or circumstances regarding how the work is performed that will determine the employment relationship.

If your business is unsure about whether the workers it wishes to engage, or who it has engaged, as independent contractors are in fact ‘genuine’ contractors, please contact one of our friendly industrial lawyers for relevant advice tailored to your business needs on: (08) 8410 9294.

If you require any legal assistance feel free to contact Ben McKay on +61 (8) 8410 9294.

DISCLAIMER: this e-news is not intended as legal advice; no reliance is to be placed hereon