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					      E             Independent contractor or
  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
                          employment contract.                      the work to be performed
                                                                    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

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
                                                                     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
   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.

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
   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
  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

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

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.

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,

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