Employee or contractor

It is important to know whether a building industry participant is an employee or a contractor.

Most independent contractors:

  • run their own business
  • control their own working times
  • decide how and where they undertake work.

Many independent contractors also advertise their business, provide their own tools and equipment and may pay others to carry out work on their behalf.

In contrast, employees are:

  • typically subject to controls on how, where and when their work is performed
  • paid regularly
  • cannot pay someone else to do their work for them.

How do I know if I am engaging an independent contractor?

Telling the difference between an independent contractor and an employee is not always a straightforward process. The courts have adopted a multi-factor test to determine whether a person is an employee or independent contractor. No single issue will be determinative. 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.

Employers should use the common law test to assist in an assessment of their worker’s status. If in doubt, it is strongly recommended you seek independent legal advice.

It is the court that can ultimately decide whether the relationship is employment or independent contracting..

Independent contractors 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 under the Fair Work Act. .

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 under the common law test. Being a contractor for tax purposes may be a relevant consideration but does not determine an individual's status.

What if a person has an Australian Business Number (ABN)?

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

 

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 they completed?

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 us as a contract for services?

No

Yes

Is tax deducted by the hirer 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.

 

Need more information?

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