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When is a contractor really an employee?

No employer enjoys paying leave loading, worker’s compensation, tax or super, but the law doesn’t take too well to managers who try to avoid these pay
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When is a contractor really an employee?

5 April 2016

Workers’ rights are protected by a well-defined line that differentiates the classification of an employee – how an independent contractor should work and when they become entitled to receive added benefits that legally belong to them.

The Fair Work Act 2009 labels crossing that line "sham contracting" - when an employer attempts to disguise an employment relationship as an independent contracting arrangement to avoid these entitlements.
Employers found to be sham contracting can incur fines up to $54,000. For a workforce that hires based on demand, this area of the law is one to familiarise yourself with.

Employee and contractor: What's the difference?

The courts assess nine key indicators to define whether a person is a contractor or an employee. While every workplace is different, these indicators give a pretty good working definition of how to employ someone:

  • Employees generally work under the direction and control of their employer, while independent contractors exercise more personal control.
  • Employees carry no financial risk, while contractors bear the risk of making a profit or a loss from the job.
  • Employers are paid superannuation and leave; contractors generally aren't.
  • Employees get tax deducted by their employers but independent contractors pay their own PAYG and GST.
Remember, just because the workers you engage bring their own tools to work and have their own ABN, it doesn't mean a court will rule they are a contractor. Even if a worker is happy to call themselves a contractor, ignorance of the law is no excuse and it's the employer who will be penalised. Trade-based businesses are notorious for passing off labourers as sub-contractors, with newspapers always filled with stories of small firms being caught.

Sourced via the Chamber of Commerce & Industry Queensland

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