Employees and independent contractors are not the same under the Fair Work Act (2009).
When engaging an independent contractor or an employee it is important that the recruiting party understands the distinguishing features. Significant legal and financial consequences can follow if an employee is incorrectly characterised as an independent contractor, commonly known as “sham contracting”.
What is an employee?
An employee is typically engaged under a contract of employment, an employee is an individual employed to provide labour to the employer in exchange for remuneration.
What is an independent contractor?
An independent contractor is engaged to provide the “principal” with services as part of the contractor’s own business or trade.
What is the difference?
Some distinguishing features of an employee and independent contractor include:
Pay
Independent contractors are paid at the completion of a project (unless otherwise agreed with the principal) whereas employees are paid by a salary or periodic wage.
Tax
Independent contractors pay their own PAYG (unless otherwise agreed with the principal) whereas an employer deducts PAYG from the employee’s salary.
Control
Independent contractors have greater flexibility and control over their work (i.e. they are able to set their own working hours) whereas an employer has a greater level of control, such as determining the hours employees are to work.
Relationship
Independent contractors have a practical entitlement to work for others whereas employees are usually limited to the one employer.
Equipment
Independent contracts supply and maintain their own tools whereas an employer will supply any tools or equipment for its employees.
Employers and principals must be aware that giving a particular label to a contract cannot avoid an employment relationship.
How can Nevett Ford help?
Be very careful when engaging an independent contractor or an employee and always seek legal advice first to ensure the relationship is established correctly from the start. Our Workplace Relations Team have the knowledge and experience to guide employers through all aspects of an employment relationship. For more information, please contact us as melbourne@nevettford.com.au or by phone on +613 9614 7111.