BY ALL ACCOUNTS
Warning employee or contractor? Do you engage in the services of independent contractors? Have you given thought over the possibility that they could be employees? Getting it wrong can land you big trouble. Following the GFC, Australia has experienced an incredible surge in the amount of contract, temporary and freelance work, dubbed ‘the gig economy’. The underlying force behind an increase in contract related work vests on the grounds of higher flexibility, and lower costs associated with outsourcing work to a third party. The difference between an employee and an independent contractor and an employee is not defined by a fine line. The relationship between yourself and your independent contractor is called a contract for service. On the other hand, a contract of service is the relationship set between yourself and your employee. This is certainly a subtle difference but should not be considered lightly.
•
Jonathan Hanaghan, Director, Jonathan Grant Accountants
•
An employee is mostly provided with tools and equipment by their employer. Contractors mostly provide their own tools and equipment.
Commercial risks of worker •
Businesses are responsible for their employees work and so employees do not take on commercial risk. Contractors will be personally liable to rectify any defects.
Control over the work. A business has full discretion over what work needs to be completed by their employee and how it is performed. Contractors can decide how their work is done provided it is within the terms of the contract.
Independence of worker •
Employees form part of the business and therefore are not independent. Contractors operate their own business independently, they can accept or refuse additional work.
Other important factors to consider is the exclusivity of the worker and if the worker advertises themselves ‘to the world at large’. Exclusivity asks whether the worker is hired by numerous businesses or must remain exclusive to their employer. Advertising ‘to the world at large’ would likely mean that the contractor has
For example, in Rabba v OekeGuy Pty Ltd T/A PeleGuy [2013] FWC 70, the worker was a salesperson who was required to sell products to convenience stores and petrol stations. The features that supported the salesperson as an employee was that he worked exclusively under their employer, was unable to engage others to perform his work, was subject to the supervision of the employer, and selling goods was a vital part of the business of the employer. These facts were weighed up against the fact that the worker submitted invoices, paid for the cost of their motor vehicle fuel, was not subject to PAYG tax, would determine his own hours, and was paid by commission on sales. Perhaps a normal person would be led to believe the worker is a contractor as employees do not invoice their employer and do not determine their own hours. However, the inability of the worker to subcontract, and the fact that he was not conducting his own business when he performed the work gave the court no option but to conclude that the worker was an employee.
To determine whether your worker is performing a contract for service (contractor) or a contract of service (employee), the court system will analyse several factors, which is known as the multi-factor test:
Avoid the myths
Ability of the worker to subcontract/delegate.
Myth: If a worker has an ABN they're a contractor.
•
An employee can’t pay someone else to do their job, but a contractor can.
Fact: The existence of an ABN does not confirm that a worker is a contractor.
•
Basis of worker’s payment.
•
An employee may be paid for the time worked, or per item, activity, or on a commission basis. Contractors are paid to achieve a specific result.
© Ashwini Chaudhary (Monty) on Unsplash.com
•
•
14
a business name and logo in place, they have a work uniform with their own logo, and they have a storage shed or office that they can operate from.
Equipment, tools and other assets provided by worker or provided to worker. MANAGEMENT
An employer may force an employee to obtain an ABN to make them look like a contractor and hence mitigating super and tax obligations. This is known as sham contracting. Breaching the sham contracting provisions under the Fair Work Act 2009 will land severe penalties and contraventions. ResortNews | May 2022
