Usually, a ‘contractor’ means a person who is engaged by any person (except as an employee) to do any work for gain or reward. There are some common factors that may contribute to determining whether you are an employee or independent contractor are listed below.
The true test is to confirm that they are a real contractor and not a sham contractor.
Sham contracting is when an employer deliberately disguises an employment relationship as an independent contracting arrangement, instead of engaging the worker as an employee. This is usually done to avoid paying employee entitlements such as superannuation, workers’ compensation, leave, and certain taxes.
In other cases, employees are pressured to become independent contractors where they are threatened with being dismissed or are misled about the effect of changing their working arrangements.
What is a Contractor?
- Not entitled to benefits such as annual leave, personal leave, long service leave and paid public holidays.
- Can engage a subcontractor to carry out some work or delegate work to others.
- Not required to wear your company’s uniform.
- Provides some or all of their own tools, equipment and/or materials.
- Sets their own hours.
- Works as part of their own business or in association with another business.
- Responsible for their own expenses in relation to work.
- Holds an Australian Business Number (ABN), calculates their own tax liability and makes their own super contributions.
- Is able to make a profit or loss and does not have a guaranteed income.
- Is free to accept or refuse work.
- Submits invoices and is generally paid based on the volume of work performed or completed
What is an Employee?
- Receives benefits such as annual leave, personal leave, long service leave and paid public holidays.
- Not entitled to engage other workers to perform tasks, although may have some power to delegate particular duties.
- May be required to wear your company’s uniform.
- All necessary tools, equipment and materials are provided by you, unless otherwise agreed.
- Working hours are prescribed by you.
- Works as part of your business.
- You are responsible for any expenses incurred as a direct result of the work.
- You make arrangements for PAYG tax and super contributions.
- Must perform the duties required in the position
- Receives wages or salary for the time worked.
You can face severe ramifications if you engage independent contractors when they’re really employees.