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.

Multi-factor (Common Law) test

Telling the difference between an independent contractor and an employee is complex. There’s no single rule that determines the question. The courts have adopted a multi-factor test to determine whether a person is an employee or independent contractor. Courts place more weight on some matters, especially on who controls the way 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 participants1 can use the common law test to help self-assess their status. A table summarising the common law test is provided on this fact sheet (below). If you have any doubts, it is strongly recommended you seek independent legal advice.

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

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

An individual may be called a ‘contractor’ according to other federal and state laws. This doesn’t automatically make them an independent contractor.

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

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

A person is not automatically an independent contractor if they have or apply for an ABN.

Need more information?

Contact us directly for more information or advice about your individual circumstances:

  • Hotline: 1800 003 338
  • Email: enquiry [at] abcc.gov.au
  • Website: www.abcc.gov.au

 

Summary of Common Law Test

The Common Law Test can be used as a guide, but even if a majority of answers point to one particular status, it doesn’t guarantee the legal status of the individual.

You should also note that no single factor will be conclusive.

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

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

1To learn more about what defines a ‘building industry participant’ and ‘building work’ please refer to the ‘Our jurisdiction’ fact sheet, available at abcc.gov.au/resources.

Factsheet