The difference between a contractor and an employee
There is no single indicator determines whether or not an individual is a contractor or an employee, according to the Fair Work Commission.
Rigby Cooke Lawyers employment law expert Stephanie Burn notes that it doesn’t matter how a business labels a person working for them. What matters is the work arrangements between the individual and the business.
“Businesses should not engage people as contractors in order to avoid obligations owed to employees,” she says.
“If a person is engaged as a contractor is actually an employee, even though the parties label the relationship as a contractor arrangement, the person may still be considered to be an employee by the Fair Work Commission.”
Courts will look at the individual merits of each work arrangement, and look at a number of considerations. The Fair Work Commission gives the following examples of common indicators:
Degree of control over how work is performed
Employee: performs work, under the direction and control of their employer, on an ongoing basis.
Independent Contractor: Has a high level of control in how the work is done.
Hours of work
Employee: Generally works standard or set hours. Casual employees may vary from week to week.
Independent Contractor: Under agreement, decides what hours to work to complete the specific task.
Expectation of work
Employee: Usually has an ongoing expectation of work. Some employees may be engaged for a specific task or period.
Independent Contractor: Usually engaged for a specific task.
Employee: Bears no financial risk.
Independent Contractor: Bears the risk for making a profit or loss on each task. Usually bears responsibility and liability for poor work or injury sustained while performing the task. As such contractors generally have their own insurance policy.
Employee: Entitled to superannuation contributions from their employer.
Independent Contractor: Usually pays their own superannuation.
Tools and equipment
Employee: Tools and equipment are generally provided by the employer.
Independent Contractor: Usually pay for their own tools and equipment.
Employee: Has income tax deducted by their employer.
Independent contractor: Pays their own tax and GST
Method of payment
Employee: Paid regularly (weekly, fortnightly, monthly).
Independent Contractor: Has an ABN and submits invoices for work completed, or is paid at the end of project or contract.
Employee: Entitled to paid leave. Casual employees are can receive leave loading in lieu of leave entitlements.
Independent Contractor: Does not receive paid leave.