Has the boss asked you to register a company or obtain an ABN in order to ‘get paid’?
If this is the case then you may be wondering whether you are technically classified an employee or an independent contractor.
It is crucial to be aware of this distinction as it dictates your legal, regulatory and even ethical rights and responsibilities.
Am I an Employee?
The most clear indication of an employer-employee relationship is the existence of a valid contract of employment. This document will generally stipulate the mutual terms under which you conduct your role and are remunerated or afforded certain privileges by your employer. A tangible contract need not exist for the court to determine that you are an employee. In lieu of a formal arrangement there are a series of considerations that may collectively contribute to a finding of employee status. These largely fall within two categories; obligations and entitlements.
Obligations: These are duties that you are ordinarily required to carry out or uphold as part-and-parcel of your ‘job’. You may be required to work a set amount of hours each week, in a specified location under the supervision of a manager or senior colleague. Perhaps you are asked to wear a uniform while working, be restrained from seeking additional or competing employment and precluded from subcontracting your work to another party. Furthermore, you may be obliged to complete the tasks allocated by the employer (within reason), with limited to no choice as to its nature or procedures.
Entitlements: In consideration of your blood, sweat and tears it is likely that you will receive a pre-determined salary or wage. This is a simple entitlement for your labour, money! Other benefits may be government regulated, such as the payment of superannuation instalments into a nominated super fund and cover by the employer’s workers compensation insurance policy. At the same time, you have the right to receive regular payslips and to have income tax withheld from your pay packet. Depending on the type and duration of your arrangement, an employee may be entitled to paid leave for holidays, illness and bereavement.
If you are experiencing a deficit in either of the above-listed fields, it might be time to assess the nature of your work and relationship with your ‘employer’.
Am I an Independent Contractor?
Put simply, an independent contractor operates their own business. The mere fact that you have an ABN is not a conclusive determinant of the character of an independent contractor but it is a minimum threshold. Aside from holding an ABN, a contractor must account for and pay their own tax and may even operate under a registered company, partnership or trust structure. As an independent contractor you will be contractually obliged to execute specific services with limited entitlements offered by the the party engaging your labour.
Obligations: The functions an independent contractor is commissioned to undertake will generally be stipulated in the service contract. These are usually governed by a definite timeframe, during which it is expected that a project will be completed or a desired result, for which payment will be made once satisfactorily achieved. For this reason, it is mostly a highly skilled or technical service that is offered. Rather than accepting regular payments via direct debit or cheque, a contractor submits invoices to the other party to be paid via a pre-determined method. The independent contractor is required to supply their own job equipment and tools, and furthermore must ensure that their own separate workers compensation insurance has been arranged.
Entitlements: The relative flexibility of an independent contractor when compared to an employee is a very attractive feature of this role. An independent contractor can control the nature of their services and how these are provided. The contractor is also in a position to refuse unwanted work and can subcontract their duties to an outsider. There is the potential to earn a higher income due to the capacity to undertake several projects at any given time. This structure can therefore, afford the opportunity to try a new or different career path without being locked in to a longer-term employee arrangement. At the same time, the typical employee benefits such as paid leave and superannuation contributions are the the independent contractor’s own considerations.
A great introductory resource to more clearly define your role is the Independent Contractors Decision Tool. Independent Contractors Decision Tool
Fair Work Australia takes a hardline approach to sham contracting arrangements. This is essentially where an employer treats an employee as a contractor to avoid their obligation to provide employee benefits. These arrangements are illegal. Employers whom engage in such practices may face civil penalties for contravention of the Fair Work Act 2009 (Cth), and avoidance of compulsory workers compensation laws. Criminal prosecution by the Commonwealth Director of Public Prosecutions is also a likely response to tax evasion and failure to adhere to statutory superannuation requirements.
To complain about a sham contracting arrangement please contact the Fair Work Ombudsman.
This information is of a general nature only and does not constitute professional advice. You must seek professional advice in relation to your particular circumstances before acting.