As a business owner, it is important that you know whether the workers you have engaged are employees or independent contractors. This distinction is important for determining a worker’s entitlements, such as long service leave, workers compensation, superannuation guarantee, and other requirements and avenues such as deduction of tax, record keeping, and unfair dismissal claims.
There is no legislative definition of employment and no definitive test for employment. Instead, the question of whether or not a worker is an employee or an independent contractor is determined by considering a number of common law principles and taking a “multi-factor” approach.
The “multi-factor” test involves considering a number of factors about the relationship between your business and the individual worker. These include:
the degree and nature of control exercised over the worker (and the right to exercise this control);
the mode of renumeration;
responsibility for tools and equipment;
the extent of the obligation to work for your business; and
any capacity to delegate work to others.
It is the totality of the relationship that the courts will consider when determining whether a worker is an employee or an independent contractor.
The Fair Work Commission’s website provides the following table from the case of Abdalla v Viewdaze (2003), where the court held that there are many factors that potentially have to be considered with determining the relationship between your business and the worker.
To be generally considered an employee
To be generally considered an independent contractor
Employer exercises, or has the right to exercise, control over the manner in which work is performed, the location and the hours of work etc.
Worker controls how work is performed.
Employee works solely for the employer.*
Worker performs work for others, or is genuinely entitled to do so.
Employer advertises the goods or services of its business.
Worker has a separate place of work and or advertises his or her services to the world at large.
Employer provides and maintains significant tools or equipment.
Worker provides and maintains significant tools or equipment.
Employer can determine what work can be delegated or sub-contracted out and to whom.
Worker can delegate or sub-contract any work to other persons to complete.
Employer has the right to suspend or dismiss the worker.
Contract may be terminated for breach.
Employer provides a uniform or business cards.
Worker wears their own uniform or other clothing of their choice. Worker has own business cards.
Employer deducts income tax from remuneration paid.
Worker responsible for own tax affairs.
Employee is paid by periodic wage or salary.
Worker provides invoices after the completion of tasks.
Employer provides paid holidays or sick leave to employees.
Worker does not receive paid holidays or sick leave.
The work does not involve a profession, trade or distinct calling on the part of the employee.
The work involves a profession, trade or distinct calling on the part of the worker.
The work of the employee creates goodwill or saleable assets for the employer’s business.
The worker creates goodwill or saleable assets for their own business.
The employee does not spend a significant portion of their pay on business expenses.
The worker spends a significant portion of their remuneration on business expenses.
* Generally referring to full-time employment – some employees may choose to work additional jobs.
It is important to note that the above table is not conclusive or comprehensive, and each relationship is to be considered on a case-by-case basis. Below are some decisions from the Fair Work Commission regarding whether a worker is an employee or an independent contractor:
Abdalla v Viewdaze Pty Ltd t/a Malta Travel (2003) 122 IR 215
A travel consultant who occupied business space in the respondent’s premises, was paid by commission, and controlled the hours and manner of his work, was found to be conducting his own business and not to be an employee of the respondent.
The applicant was a salesperson who worked exclusively for the respondent, was not able to engage others to perform his work, was subject to the respondent’s supervision and control, and sold goods as an integral part of the respondent’s business. The applicant submitted invoices for payment, was paid by commission, was not subject to PAYG taxation, did not receive leave entitlements, and determined his own hours of work. The applicant was held to be an employee of the respondent.
The two applicants had been shop managers who shortly before dismissal had been moved from employee status to independent contractor status. They were found to be employees at the time of dismissal on the basis that the independent contractor arrangement was a sham not genuinely intended by the applicants or the respondent.
If you require assistance with assessing whether your workers (or prospective workers), are employees or independent contractors, please contact our office, as we would be more than happy to assist.
This article is not legal advice and the views and comments are of a general nature only.
This article is not to be relied upon in substitute for detailed legal advice.