How to determine if a worker is an employee or an independent contractor

Independent Contractors

Independent contractors run their own business. They usually negotiate their own fees and working arrangements and can work for more than one client at a time. Independent contractors are called contractors or subcontractors (subbies).

Multi-factor test

The courts have adopted a multi-factor test to determine whether a person is an employee or carrying on their own business as an independent contractor. No single issue will be determinative. However, courts will place greater weight on some matters, in particular, on the right to control the manner in which the work is performed.

In applying the test, a court will look at the whole relationship and make a decision on balance. Any written agreement stating the nature of a relationship as either employment or contractual is relevant but not conclusive.

Building industry participants can use the common law test to assist in a self-assessment of their status. A table summarising the common law test is provided on this fact sheet (overleaf). If in doubt, it is strongly recommended you seek independent legal advice.

In the instance of a dispute, a court may ultimately be called upon to determine whether the relationship is that of an independent contractor or an employee.

What if the person is an independent contractor under taxation or superannuation laws?

An individual may be called a ‘contractor’ according to other Federal and State laws. This does not automatically make them an independent contractor.

For example, even if an individual is classed as a ‘contractor’ for taxation purposes, this will not necessarily mean that they are an independent contractor at common law. Being a contractor for tax purposes may be a relevant consideration but does not determine an individual’s status as an employee or a contractor.

What if they have an Australian Business Number (ABN)?

Having or obtaining an ABN does not automatically mean that a person will be classed as an independent contractor.

A summary of the common law test is provided below.

 

Summary of Common Law Test *

Factor

Indicative of Employment

Indicative of Independent Contracting

Do they have control over the way they perform a task?

No

Yes

Do they supply/maintain tools or equipment?

No

Yes

Do they work standard hours?

Yes

No

Are they paid according to task completion, rather than receiving wages based on time worked?

No

Yes

Do they incur any loss or receive any profit from the job?

No

Yes

Do they accept responsibility for any defective or remedial work which was their doing?

No

Yes

Are they free to work for others at the same time?

No

Yes

Do they accept that work lasts for the term of each particular task or contract?

No

Yes

Do they have the right to employ or subcontract any aspect of their work to another person?

No

Yes

Do they have the right to employ an apprentice or trainee in the execution of contracts?

No

Yes

Do they understand the arrangement between you as a contract for services?

No

Yes

Is tax deducted from their pay?

Yes

No

Do they provide their own public liability and sickness and accident insurance cover?

No

Yes

Do they receive paid holidays or sick leave?

Yes

No

Do they render tax invoices for payment?

No

Yes

Do they file GST returns?

No

Yes

 

* The outcome of this test is not determined mathematically by reference to the total number of factors pointing to the existence of one type of relationship versus the other. It is equally important to note that no one factor will be conclusive.

If in doubt, it is strongly recommended that you seek independent legal advice.

Download a print-friendly version of this fact sheet (PDF - 298K).

Need more information?

For further information, advice or assistance please contact the ABCC at 1800 003 338 or enquiry [at] abcc.gov.au.