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There are important differences between contractors and employees in the building industry. We’ve outlined these differences below.
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, most employees:
- follow directions on how, where and when their work is performed
- are paid regularly
- can’t pay someone else to do their work for them.
How do I know if I’m engaging an independent contractor?
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.
You can use the common law test below to assess your worker’s status. If in doubt, we strongly recommended you seek independent legal advice.
What if there’s a dispute over the status of a worker?
Ultimately, only a court can decide whether a worker is an employee or an independent contractor.
A court will look at the whole relationship and make a decision on balance after weighing the factors described below. Any written agreement stating the nature of a relationship as either employment or contractual is relevant, but not conclusive.
Independent contractors under tax or superannuation laws
An individual may be called a ‘contractor’ according to other Federal and state laws, but this doesn’t automatically make them an independent contractor under the FW Act.
For example, even if an individual is classed as a contractor for tax purposes, they will not necessarily be an independent contractor under the common law test. Being a contractor for tax purposes may be relevant, but it doesn’t determine an individual’s status.
What if a person has an Australian Business Number (ABN)?
A person is not automatically an independent contractor if they have or apply for an ABN.
The Common Law Test
The Common Law Test can be used as a guide, but even if you answered a majority of answers pointing 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 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 |