There are a number of different mechanisms in which to engage workers. Correctly classifying a worker as an employee or an independent contractor can have significant consequences for a business, including ensuring compliance with relevant legislation.

Historically the approach to distinguish between an employee and an independent contractor was through what was called the control and organisation test.

The current approach is the multifactorial test, where no single factor is determinative. The factors to consider are summarised below.

Factors to Consider Likely Result
How is the worker paid? Payment by completion of tasks or result is more consistent with an independent contractor.
Do they have an ABN and have they met other regulatory requirements of a business? If the worker works under an ABN they are likely to be an independent contractor. Other indicators will include whether they have a registered business name, as well as taxation and GST registrations.
Does the worker provide services through a company? If the worker provides services through a company, they are likely to be an independent contractor.
Does the worker create goodwill or saleable assets in the course of their work? If the worker cannot sell assets or goodwill it creates they are likely an employee.
Is income tax deducted from payments to the worker? If income tax is deducted it may suggest an employment relationship, however, a principal will need to withhold pay as you go tax if the independent contractor has failed to produce an ABN.
Does the worker have paid leave? If paid leave is provided this would suggest an employment relationship, however, it is important to note that casual employees are also not provided these statutory leave benefits.
Superannuation If the worker pays their own superannuation, they are likely to be independent contractors. However, independent contractors may be entitled to be paid superannuation contributions in some situations.
Does the worker have the capacity to control and direct the manner in which their work is performed? The exercise of control over work may suggest an employment relationship, however, an employer will not be able to dictate when a casual employee perform their duties, company policies may apply to independent contractors and the power to discipline, suspend or terminate an engagement of the work on short notice may also be indicative of an employment relationship.
Does the worker have a separate place of work and advertise their services to the public? If the worker has a separate workplace and advertises their services, they are likely to be an independent contractor.
Does the worker provide their own tools, equipment or resources? If the worker provides their own tools, equipment or resources, they are likely an independent contractor.
What is the nature of any expenditure by the worker and the ratio of expenses to income? If the worker receives an allowance or gets reimbursement for expenses that are necessary to perform the work, generally this indicates an employment relationship.
Does the worker delegate or subcontract work to others? If the power to delegate is unlimited this would suggest the worker is an independent contractor
Does the worker pay for and maintain their own insurance in relation to the services provided? If the worker pays for their own insurance, they are likely to be an independent contractor.
Does the worker represent themselves as being part of the business? If the worker is wearing a uniform or displaying the company logo or has a business card of the company and the worker is an emanation of the company, the work is likely to be an employee.
Does the worker have the capacity to work for others? It is a general characteristic of the independent contractor that they are able to work for others, however, it is important to note that casual employees are also able to work for others.
What was the intention of the parties? This will be on a case by case basis to ascertain the intention of the parties and to review the terms of the arrangement, whether written or inferred through conduct.
What was the expectation of work? If the worker is engaged for a specific task rather than on an ongoing basis, the work is likely to be an independent contractor.

 

Takeaways

Employers will need to assess the various factors in their particular circumstances, considering each worker on a case by case basis. The determination on who is or is not an employee or an independent contractor can be difficult to determine and the common law has no single definition or definitive test to determine this.1 The multifactorial test takes into account a variety of factors but not all of the usual criteria may be relevant and applicable to each case.

If you have any issues or concerns with the employment status of any workers engaged by, or within your business, please contact us at Morrissey Law & Advisory to discuss the above.

 

[1] Fair Work Ombudsman v Konsulteq Pty Ltd [2013] FCCA 1315

Disclaimer: This publication by Morrissey Law & Advisory is for general information and commentary only and should not be considered or relied upon as legal advice. Formal legal advice should be sought in relation to any matters or transactions that may arise in relation with communication.