Call Us! +61 2 9431 8600

Employee or Contractor? What’s the difference and why is it important.

In light of last month’s recent two High Court rulings (see FairWork link below for details), it’s essential that Associations review their current employment contracts and independent contract agreements. The penalties for misclassifying an employee as an independent contractor can be severe.

Previously, classifying was determined by the relationship between the individual and the employer, however due to the two recent cases, the Court has moved away from this approach and put the emphasis on the written contract.

As an employer or service contractor, it is essential that you understand the distinction between whether a worker is an employee or a contractor and have the correct contracts and agreements in place. Getting it wrong can expose your organisation and responsible individuals to significant risk and costs under both tax and employment law. 

It is also important to note that there may be differences in interpretation by both FairWork and the ATO, depending on the circumstances.

Below are some simple indicators to help you determine whether a worker is an employee or a contractor. However if you still have concerns take time to check the information in the links below and / or speak with an employment lawyer to ensure your organisation is acting correctly.

For a more detailed breakdown of criteria, we encourage you to visit the resources below.

Employees

  • People working in a contract “of service”, serving the employer under a relevant award, agreement, or employment contract.
  • Considered part of the business and (generally) told how, where, and when they work.
  • Dedicate their time and effort primarily to one organisation.
  • Take no commercial risks and the business is legally responsible for the work done.
  • Employer provides all or most equipment and systems for doing the work.
  • Must apply for time off.
  • Paid by payroll system, with PAYG and any fringe benefits deducted. Eligible for superannuation.
  • Have all minimum rights under employment laws.

Contractors

  • People working in a contract “for service”, serving themselves by delivering outcomes to their client(s).
  • Self-employed, running their own independent business.
  • Can work freely for a number of organisations (or sub-contract the work out).
  • Dictate their own time off and may or may not be available for work.
  • Take commercial risks and are legally responsible for their work.
  • Use all or most of their own equipment and processes.
  • Invoice for their work.
  • Have most workplace rights but different tax, insurance, and superannuation responsibilities.

Whether intentionally, or unintentionally, it’s against the law for a business to incorrectly treat their employees as contractors and its imperative Associations get it right. This will minimise any workers bringing an employment claim against the Association and prevent reputational damage.

Photo by Annie Spratt on Unsplash