Contractors have different workplace rights and protections from employees. Whether you are a contractor or hire contractors it is important to understand the different rules.

In 2021, the High Court of Australia highlighted the importance for businesses to draft clear and comprehensive independent contractor agreements to ensure they reflect the rights and obligations of the parties included in the agreement. The terms defined in the written agreement are to be used to determine the nature of the relationship. The two decisions were made regarding the distinction between employees and independent contractors.

Poorly written contracts which do not accurately reflect the terms of the agreement could result in a costly and time-consuming dispute.

Independent contractor vs employee

There are several different factors that determine if you are an independent contractor or an employee. In general

  • Independent contractors own their own business and sell their services to others
  • Employees work in someone else’s business – the employer controls how, where and when they do their work,

The following six factors should be considered when deciding if someone is an employee or a contractor.

  Independent Contractor Employee
Ability to subcontract/ delegate They can pay someone else to do the work by subcontracting or delegating the work Unable to subcontract or delegate the work to someone else
Basis of payment The worker is paid for a result achieved based on the quote they provided.

A quote can be calculated using an hourly rate or price per item to work out the total cost of the work

 The worker is paid either;

●        For the time worked

●        A price per item or activity

●        A commission
Equipment, tools and other assets ●        The worker provides all or most of the equipment, tools and other assets required to complete the work

●        The worker does not receive an allowance or reimbursement for the cost of the equipment, tools and other assets

 ●        The business provides all or most of their equipment, tools and other assets required for the completion of the work, or

●        The worker provides all or most of the equipment, tools and other assets required, but the business provides the worker with an allowance or reimburses them for the costs.
Commercial risks The worker takes the commercial risks, with the worker being legally responsible for the cost of rectifying any defect in their work The worker has no commercial risks. The business is legally responsible for the work completed by the worker and liable for the cost of rectifying any defect in the work
Control over the work The worker has freedom in the way the work is done, subject to the specific terms in the contract or agreement The business has the right to direct the way in which the worker completes their work
Independence  The worker operates their own business independently of the business. The worker performs services as specified in their The worker is not operating independently of the business. They work within and are considered part of the business

 

Unfair Contracts 

If you are an independent contractor or believe you are an employee, you may wish to review your current contracts for any potential unfair terms.

Under the Independent Contractors Act 2006, independent contractors are able to ask the court to review a contract on the grounds that one or more of its terms is ‘unfair’ or ‘harsh’. The courts will review;

  • The terms of the contract when it was made
  • The relative bargaining strengths of the contract parties and, if applicable, anyone acting on their behalf
  • If there was any undue influence or pressure, or unfair tactics used against a party to the contract
  • If the contract provides remuneration that is less than that of an employee doing similar work
  • And any other information they believe is relevant

Based on the court’s decision they are able to order;

  • The term of the contract to be changed (for example, they may be added or removed)
  • The whole contract, or part of the contract be ‘set aside’ (that is, have no effect)

 

It is illegal for employers to;

  • Misrepresent an employment relationship as an independent contracting arrangement
  • Dismiss or threaten to dismiss an employee for the purpose of engaging them as a contractor
  • Say something false to persuade an employee to become a contractor

4 common misconceptions of independent contractor and employee 

  1. Workers who do short-term work are automatically contractors – both employees and contractors can be hired for;
    1. A casual, temporary, on call and infrequent work
    2. Busy periods
    3. Short jobs, specific tasks and projects
  2. Workers with an ABN are always contractors – an ABN is not a determining factor of whether a worker is a contractor or not.
  3. If someone provides an invoice for their work, it means they are a contractor – the submission of an invoice is not a determining factor of whether a worker is a contractor or not.
  4. If most people in the industry are contractors, you should be too – just because contracting arrangements are common in an industry, it doesn’t necessarily mean a worker should be treated as contractor