By Amanda Curatore

What’s the difference between independent contractors and employees? Does your business utilise both? Have you unknowingly exposed yourself to large underpayment risks and other substantial penalties? The reality is that dealing with independent contractors is tricky, and the line between employees and contractors is often blurred.

In this article, we explain everything you need to know so you can spot the differences and protect your business.

Employee or contractor? What’s the difference?

While there are several factors which may be relevant to assessing the employer-employee relationship or independent contractor relationship, there has been a shift from the traditional approach. The previous approach looked at a holistic consideration of all formal and practical aspects of the working relationship, focusing mainly on who had control of the way work is performed. While these factors are still considerations that courts will have in deciding whether a relationship is that of an employee or contractor, the new focus is on the drafting and content within written contracts and agreements.

Businesses should be paying attention to specific clauses within written agreements concerning indicators like:

  • Are the hours of work set or negotiable?
  • Is the individual engaged to complete specific work?
  • Is there an ongoing expectation of work?
  • Does the employer pay superannuation?
  • Does the employer deduct tax from the individual?
  • Does the individual have access to leave entitlements?
  • Does the employer pay the individual regularly?
  • What are the termination clauses?

In addition, the contractual agreement issued should explicitly stipulate whether the contract is one of an employer-employee relationship or a principal-independent contractor relationship. This involves a consideration of whether the contract is one for service or one of service. Since employees and contractors have different rights and obligations, the question of which relationship an individual falls under has massive implications for an individual’s entitlements, including leave, minimum wages, and access to unfair dismissal claims. In addition, a business that engages in sham contracting can be fined $582,500 per contravention!

How can you minimise risk?

HRA Cloud is our innovative Human Resources Information Solution (HRIS). It contains all the tools and checklists you will need to ensure you are lawfully engaging independent contractors. Our checklist contains an array of documentation, including:

  • Robust Independent Contractor Agreements;
  • Confidentiality Agreements;
  • A suite of company policies and procedures; and
  • A place to upload and store the person’s insurance details, including Workers Compensation Insurance, Public Liability Insurance and Professional Indemnity Insurance.

Sham contracting is becoming more and more common in Australia with at least one law firm reportedly considering legal action to determine whether technology services such as Uber, Foodora, and Deliveroo (which recently ceased operating in Australia) are using sham contracting to evade minimum rights and entitlements. It’s now more important than ever to ensure you’re correctly engaging individuals in your business.

If your business is considering engaging with independent contractors, it’s a good idea to seek advice from a professional workplace relations service. HR Assured offers advice from experienced workplace relations consultants whenever you need it. If you would you like to find out more, contact us.

Amanda Curatore is a qualified Solicitor at FCB and HR Assured. Amanda is highly experienced in providing workplace relations advice and assistance to clients in a wide range of matters including employment contracts, modern award interpretation, managing performance, bullying and harassment, terminations, and managing risk.