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An Employee or a Contractor? 11 Factors to avoid Confusion

The central question you must ask: Is this person working as part of your business (employee) or are they working as part of their own business (contractor)?

Determining the classification of your workers is critical. There are consequences for a business and the individual (in more ways than one) who do not understand the difference between the two (e.g. penalties under the Fair Work Act for sham contracting).

This is important now more than ever. With the rise of the gig economy, the line between contractor and employee is shifting as businesses change their practices in taking on larger contractor workforce’s. There have been several cases recently where worker classification has been called into question, involving high profile companies such as Uber. It is a crucial business risk.

Drawn from case law and building on the Fair Work Ombudsman guidelines, this simple yet effective checklist can assist you in determining whether an individual is working as an employee or as an independent contractor, regardless of what the contract may say.

FactorEmployeeContractor
1. IndependenceThe worker does not perform tasks independent from the employerThe worker operates their own organisation independently from the employer and is free to accept or refuse tasks
2. EquipmentThe employer provides or pays for all or majority of the equipment used by the workerThe worker provides or pays for all or majority of the equipment used
3. Control The employer dictates and controls the work which is performedThe worker dictates and has a higher level of control over the work which is performed
4. PaymentThe worker is paid regularly based on the time worked, commission, and/or price per activityThe worker is paid once a task is completed or submits an invoice for the work completed - usually based on a quote or a prior agreed amount
5. Risk/InsuranceThe employer is legally responsible for commercial and financial risks and the work performed by the workerThe worker is legally responsible for the commercial and financial risks, the work performed, and rectification liability. The worker will have their own insurance policies to manage this (public liability / professional indemnity)
6. Method of Engagement The worker is engaged personally to do the workThe worker can be engaged personally or engaged through a company
7. Delegation/Sub-ContractingThe worker cannot delegate or engage a sub-contractor to perform the work. The work must be performed personallyThe worker can delegate and hire a sub-contractor to perform the work
8. Work HoursThe worker generally performs tasks during the standard work hours, however casual employee hours varyThe worker is flexible in their hours of work subject to the terms of agreement
9. Work ExpectationsThe worker usually has an ongoing work expectation for tasks performedThe worker is usually engaged to perform a specific task
10. TaxThe employer withholds the worker’s income tax and remits to the ATOThe worker pays their own tax and is responsible for GST obligations
11. LeaveThe worker is entitled to receive paid leave (i.e. annual leave, sick leave, long service leave, personal/carer’s leave). If a casual employee, they receive a loading in lieu of leave entitlements The worker is not entitled to paid leave

The Finlaysons Lawyers Workplace & Safety team are highly experienced with a wealth of knowledge across a diverse range of industries.

Please contact Will Snow or Guy Biddle if you have any questions about current or future arrangements for your employed and contractor workforce.

This Alert is intended as general information only. It does not purport to be comprehensive advice or legal advice. Readers must seek professional advice before acting in relation to these matters. 

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