There are a number of things that can help tell the difference between an employee and a contractor. There isn’t one thing that makes the difference on its own – you need to consider everything together.
- do ongoing work that is controlled by their employer
- work hours they’re told to work by their employer
- are not responsible for financial risk
- are entitled to superannuation from their employer
- are entitled to minimum wages
- have income tax taken out of their pay
- are paid regularly (weekly / fortnightly / monthly)
- are generally entitled to paid leave if they are permanent employees
Independent contractors usually:
- decide how to do their work and what skills they need to do it
- decide whether to employ someone else to do the work
- carry the risk of making a profit or loss
- pay their own superannuation and tax, including GST
- have their own insurance
- are contracted to work for a set time or do a set task
- decide what hours to work
- invoice for their work or get paid at the end of the contract or project
- don’t get paid leave
How do I tell the difference?
There isn’t one thing that makes the difference on its own – you need to consider all the points above.
Employers and Sham Contracting
Sham contracting is when an employer intentionally claims that an employee is an independent contractor. It also happens when an employer is careless about whether someone should be treated as an employee instead of a contractor. Sham contracting is illegal.
Employers should be careful to avoid sham contracting. Just because a worker has an ABN or invoices for payment doesn’t automatically mean they are an independent contractor.
Calling someone an independent contractor or getting them to sign a contract saying they’re an independent contractor doesn’t automatically make them one either.
If you need help in developing employment contracts to avoid any such issues, we can help.