E Independent contractor or employee? Source: Australian Government, Office of the Employment Advocate, Independent contractor or employee? Referred to in paragraph 2.14 Question Employee relationship indicators Independent contractor relationship indicator Is the individual • An employee is less likely to operate • Contractors are more likely operating under a under a business name, sole trader, to operate under one of these business name, sole company or partnership. However arrangements. trader, company or these devices may be used as a mere partnership “sham” to manipulate the arrangement? appearance of the relationship. How is the work • An employee is normally employed • The working arrangements arrangement set up? under specific terms and conditions for contractors (usually set which are often governed by an out in a contract for services) What is the practical award, industrial instrument or are more likely to focus on working employment contract. the work to be performed arrangement? including the specifications, time to complete, contract cost, and liability of the person performing the work. Where is the work • The work is more likely to be • The work is more likely to be performed? conducted at the employer’s place of performed at the specified business or other specified locations and agreed location(s). as directed by the employer. • The Contractor may have its own place of business (although is not essential). 200 MAKING IT WORK Who provides the • The employer is more likely to • The contract will specify who tools, equipment and provide materials incidental to the is required to provide tools resources for the job? performance of the duties (including and equipment. However it office space and equipment) and it is is usually the responsibility less likely that an employee would of the contractor. incur significant expenditure on • The contract may be either materials, plant and equipment. for the supply of labour or materials. It may also specify the terms upon which the materials are supplied. • A contractor is more likely to make its own arrangements regarding offices space and equipment, particularly in relation to managing its separate business. Who is responsible • The employer normally directs or has • The work may be subject to for exercising control the right to direct the manner in performance over the manner and which work is to be performed. management/indicators, time in which the inspection and supervision as • There is an obligation on the work is to be provided in any contract for employee to obey the lawful performed? services/goods. directions of the employer. • The contractor normally has freedom in the ways tasks are performed, subject to job specifications. Does the contract • There is an implied or express • A contract for services may require the work to agreement that the work allocated is contain a provision allowing be performed to be performed by the employee. work to be performed by personally? persons other than the • There may be a power of delegation contractor such as a of duties to other employees of the subcontractor or employees employer. of the contractor. INDEPENDENT CONTRACTOR OR EMPLOYEE? 201 Does the job relate to • The employee/employer relationship • A contract for services or a specified period or is likely to require a person to terms of the engagement specific tasks within perform work on a continuous or would normally describe or which the job is to be systematic basis. A fixed term specify the work and the performed or is it of a contract may be indicative of an time within which it is to be continuing duration? employee employer relationship performed. where it relates to the person performing general duties of a specific type rather than any specified tasks. Who determines the • Working hours and the granting of • A contractor does not working hours and leave is more likely to be subject to necessarily require leave requirements? the discretion of the employer and permission to take leave, or may be subject to a person’s to work set working hours. entitlements under their relevant • A contractor can within the industrial instrument or statute. confines of the contract • An employee is generally expected to attend work at their attend to work during specific times discretion, but is often legally unless they are on approved leave or bound by the contract to leave entitled to them under their ensure that the contracted industrial instrument or statute. work or service is completed at the specified time. Is the person • The work is performed as an integral • The work although performing the work, part of the business of the employer. performed for the principal in his or her The employee may also be described business is not necessarily activities, part of the as a member/representative of the integrated into it. principal’s business? principal’s business. Is the work • A contract of employment may be of The work is undertaken to relationship continuing duration, requiring the produce a given result. The continuing? employee to perform ongoing duties contractor whilst undertaking and tasks. This however does not the work is not necessarily exclude fixed, short term or casual under the direct order or engagement which is common in control of the principal. The professional or specialised fields of contractor can use their employment. discretion on matters not specified in the contract for service. 202 MAKING IT WORK Is the person • An employee’s ability to undertake • The contractor is more likely performing the work other employment or business to be at liberty to accept work free to accept work activities may be hindered if those from others and to solicit and from other ventures conflict with their duty to conduct other business, employers/principals undertake their employment duties. subject to their current and or to conduct commitment to fulfil existing business on their own contractual arrangements. accord? Does the person • An employee does not generally have • The tasks to be performed by performing the work the right to refuse lawful and a contractor are normally have the right to appropriate directions from the agreed prior to entering into refuse to undertake a employer to perform allocated tasks. the contract for service. The particular job or task? The persistent refusal to perform task contract will govern what may constitute grounds for dismissal. tasks will be performed. The principal may seek remedies for the failure to perform under the contract. Is income tax being • It is likely that income tax will be • It is less likely that income deducted from the deducted from an employee’s wages. tax will be deducted from individual’s contractor’s payment, remuneration? although the contractor and principal may enter into an agreement where PAYG payments may be withheld by the principal. Where this is not the case, a contractor will charge the principal GST for goods or services provided as part of the service. INDEPENDENT CONTRACTOR OR EMPLOYEE? 203 Subject Employee Independent contractor Superannuation • The employer must pay • Contractors will make their superannuation contributions on own arrangement concerning behalf of employees. superannuation. Taxation implications • The taxation implications for • Contractors have different employees is calculated based on an taxation responsibilities in employee’s income in accordance relation to goods and Professional taxation with the Income Tax Assessment Act services tax (GST) and advice should be 1997. personal services income. For sought for details on example, in certain this issue. circumstances “contractors” earning 80% of their income from the one principal may be deemed to be employees for the purposes of tax law, and should seek advice from the ATO, financial or tax planner on this issue. Termination of the • The employee’s service may be • The services may be agreement terminated in accordance with terminated in accordance relevant law and the industrial with the terms of the contract instrument they are employed under. for service/goods. Liability for losses • It may be likely that the employer • The principal will not be resulting from will be vicariously liable for damage vicariously liable for any substandard work or loss suffered from work losses resulting from performed by an employee. substandard work. The principal’s liability may be reduced where loss or damage results from the contractor’s poor performance, but this may not be always the case where the principal retains a duty of care to ensure that the work is performed properly (for example). 204 MAKING IT WORK Remedy available to • The services of an employee may be • The termination provisions employer/principal terminated in accordance with of the contract may allow for where the work relevant law and the instrument the principal to terminate the performed is under which the employee is contract. substandard. engaged. • Damages may also be payable if the contractor has breached the contract (by default). Tax invoices • Payment is more likely to be made by • A contractor would normally reference to the relevant law or the render a Tax invoice or industrial instrument setting the payment request on an terms of employment. account payable by the principal in accordance with its obligations under GST legislation. Workers • The employer is liable to cover • A contractor may be more compensation employees for workers likely to undertake their own compensation, and must take out workers’ compensation insurance to protect against this cover. situation. Other entitlements • An employee has in accordance with • The contract is more likely to relevant law and their industrial provide for the specified instrument an entitlement to work to be performed for an payment for leave, holidays and agreed sum identified in, and other benefits. payable in accordance with, the contract. • Payment is normally made on a regular basis (weekly, fortnightly, monthly, hourly or piece work rate). Source: Australian Government, Office of the Employment Advocate, Independent contractor or employee? accessed 22 June 2005, www.oea.gov.au/docs/contractorvsemployee.pdf.