The legal distinction between an employee and an independent contractor is a question of fact and law. This distinction determines how a worker must be properly paid, taxed and engaged to work.
The improper classification of an employee as an independent contractor may expose a business to underpayment claims and penalties for breaches of workplace laws, including sham contracting.
The High Court has confirmed that where a comprehensive written contract is in place with a worker, on terms that are consistent with the well-established multi-indicia test of an independent contractor relationship, the written contract will be king when it comes to assessing whether the worker is a genuine independent contractor.
Below is a non-exhaustive summary of some key elements of the multi-indicia test relevant to assessing if a worker is an employee or an independent contractor.
The degree of control exercised over the worker, including how and when work is performed. The more control, the more likely the worker is an employee. The more independence, the more likely the worker is a contractor.
The assumption of risk. An employer assumes risk arising from the work of its employees. The assumption of risk by a worker, including for the rectification of work, is more likely to indicate a contractor.
The ability to delegate. The requirement to do the work personally is more likely to indicate employment. A right to delegate the work to others is more likely to indicate a contractor.
The provision of tools and equipment to a worker is more likely to indicate employment. An obligation on the worker to provide the necessary tools and equipment is more likely to indicate a contractor.
The calculation of payment based on time worked or services delivered. Payment for time worked is more likely to indicate employment. Payment calculated based on services delivered is more likely to indicate a contractor.
The ability to work for others. Exclusive service is more likely to indicate employment. Freedom to do the same work for others is more likely to indicate a contractor.
Secure greater certainty for your business with the right contract for the right worker. We advise on and draft independent contractor agreements for businesses, including services and facilities agreements for medical and allied health practices taking account of recent payroll tax cases.
Stephen Schoninger leads the employment and workplace law practice at Avant Law, based in Sydney. Stephen has over 18 years’ experience practising exclusively in employment, industrial relations and discrimination laws. Stephen is called on for his ability to plainly advise on and pragmatically apply legal principles to manage and resolve complex issues arising in the workplace. Stephen advises employers and employees in the private and public sectors on all areas of workplace law and is an experienced litigator of work-related claims. Stephen also conducts workplace investigations and delivers workplace compliance training. He regularly presents seminars on topical employment and workplace law issues.
Disclaimer: The information in this article is general in nature and is current to 9 August 2022. It does not take into account individual circumstances and is not professional legal, financial or taxation advice. Avant Law provides legal services. It does not provide taxation or financial advisory services.
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