Employee or Contractor

Let me start this blog post with a big, fat disclaimer first – ONLY THE FAIR WORK COMMISSION OR OTHER AUSTRALIAN COURT CAN DECIDE IF SOMEONE IS EITHER AN EMPLOYEE OR AN INDEPENDENT CONTRACTOR.  There, I’m glad we got that out of the way.  However this does demonstrate the seriousness of this issue in workplaces.  Especially when many companies have found themselves with a WorkCover, tax or a Superannuation claim.  This can happen when the person has had an accident and hasn’t had their own insurances, paid their taxes, or the relationship sours and they claim superannuation.  Let’s look at a few of the different criteria for assessing who’s who.

Just because you called someone an independent contractor in their contract, doesn’t make then an independent contractor.  Bodies such as the Fair Work Commission and the Australian Tax Office will look at the overall relationship, rather than just the wording.  A number of people have signed a contract with the specific wording of “independent contractor”, only to be able to argue that they were in fact employees when looking at other criteria.  Think about it, if I introduced you to my pet “duck” and you notice he has four legs and a tail, and barks, what would you call it?

Many people have heard of the 80:20 rule.  The idea being that if someone performs 80% or more of their work for one company, then they must be an employee.  Not necessarily.  But this is a good place to start.  But, you could also have one company as your major subcontractor, as business necessity or coincidence.

Another factor can be if someone has an ABN (Australian Business Number) and invoices the company for work done.  Whilst this is considered important, factors such as whether the person was truly getting paid enough to pay their own insurances, replacement of tools, keeping up of professional knowledge and pay their own taxes need to be considered.  A true independent contractor will have a loaded rate to pay for these things.

The “control test” is an important factor.  The idea being that if someone is an employee, their employer will tell them what to do, when to do it and how to do it.  Also, if someone is an employee, they cannot send someone else in their place.  You have a contract of employment with that person, not with a company.  A plumber is a good example of an independent contractor.  When you can get a plumber to look at your broken toilet, you don’t care how they fix it, you certainly can’t tell them when, and you won’t ask them to do a little cleaning or filing in between jobs.  They come, they fix, they bill.

This is just an outline of what can be called into question should a claim arise, and every case will turn on its own facts.  Your accountant can be good to talk to, and the Australian Tax Office (www.ato.gov.au) has a lot of handy information too.  But top tips include:

  • Sign a contract.  This should specify who is who, who has responsibility for what, and how payment is made.
  • Crunch the numbers.  If the subbie can’t afford to pay insurance and taxes, then they probably won’t.
  • Ask to see certificates, or proof, of relevant insurances, such as personal income and professional liability.
  • Call me to help assess your risk!