We frequently receive questions about whether a worker is properly described as an “independent contractor”, or if they should be considered an employee. Incorrectly describing the arrangement can create a minefield of potential problems.
What is the Difference?
An employee is engaged by a business individually for their labour, and is under the direct control and supervision of the employer. By contrast, an independent contractor is engaged on the basis of providing clearly identified services. That is, the service itself, rather than the person is engaged. This subtle difference has flow on effects for the responsibilities and liabilities of both the business and the worker.
When Issues Arise
The following problems can arise if the engagement has been done incorrectly:
- claims for non-payment of employee entitlements such as annual leave, sick leave, long service leave and superannuation;
- claims relating to under-payment of Award rates of pay;
- unexpected workers compensation, public liability and professional indemnity obligations;
- unexpected ATO obligations and liabilities.
There is a regime under the Fair Work Act 2009 (Cth) to discourage and prevent sham arrangements. These provisions are to deter companies from representing that a worker is an independent contractor when in truth the worker is actually an employee. Civil penalties attach to breaches of these provisions.
The best approach for both workers and business is to focus on the prevention rather than the cure. The employment team at Atkinson Vinden is available to discuss whether the decision between an employment contract or an independent contracting arrangement is an issue in your circumstances. We are happy to advise clients on new employment contracts or reviewing current working relationships. In our experience, disputes regarding these issues can often be avoided by reviewing the circumstances of the case and engaging in an open discussion with the worker or business concerned.
Please contact a member of our employment team if you would like any further information.