The law recognises many relationships where one party performs work for another in exchange for payment. These relationships may include an employer/employee relationship or that of an independent contractor. Getting the classification correct is of the upmost importance.
An employee generally works under the control and direction of the employer and the employment relationship is governed by the Fair Work Act. An independent contractor is operating their own business and is providing services to a business in exchange for a fee.
There is no legislative provision which provide a conclusive definition of 'employment'. Rather, a workers status as either an employee or an independent contractor is determined by reference to common law principles and by looking at the facts of each situation. To distinguish a worker as either an employee or an independent contractor the relevant factors of the working relationship must be considered. These factors may include:
- The mode of remuneration for the worker (including whether income tax is deductable);
- The responsibility for the provision and maintenance of the equipment;
- Whether there is a right to delegate by the worker;
- The degree and nature of control exercised over the worker (such as hours, attendance at meetings, compliance with workplace policies etc.);
- The liability and insurance cover for the worker.
There is no set number or combination of factors which determine whether the worker is to be deemed as an employee or an independent contractor. All factors must be considered in light of the circumstances of the business and the worker and the manner in which the work is performed.
Employing someone as an independent contractor can often be cheaper and easier, but it can also carry considerable risk if it is not completed correctly or not completed for the right purposes. There are serious penalties that can apply if an employer misrepresents an employment relationship as an independent contracting arrangement.
This includes a maximum penalty under the Fair Work Act of up to $54,000.00 per contravention. Penalties may also include a PAYG withholding penalty for failure to deduct the required tax and a superannuation guarantee charge made up of superannuation, interest and other fees. In addition to the penalties that may apply, the employer may need to pay all accrued (and unpaid) annual leave, superannuation and other employment entitlements for the entire duration of the employee’s employment.
Having well prepared and carefully documented workplace contracts can not only reduce the possibility of disputes arising and the legal liability, but can give rise to a more productive and efficient workforce. Connolly Suthers can assist you with preparing an employment contract or contractor agreements. Give our firm Partner, Brendan Gaeta a call today on (07) 4771 5664.