Am I an Employee or Independent Contractor?
Seems like an easy question but there is more to it than you might think.
The fact that you:
- have an ABN;
- provide your services to more than one entity; or
- carry on your own business,
does not necessarily make you a contractor.
The true nature of your contractual relationship can only be determined by referring the facts and circumstances of your arrangement to common law and distinguishing whether you are engaged in a ‘contract of service’ or a ‘contract for services’. An employee provides services under a contract of service and an independent contractor under a contract for services.
Relevant laws are in place to ensure that genuine independent contractors are not treated as employees and to protect genuine employees from being treated as independent contractors. It is important to get the distinction correct because the employer/employee and payer/contractor relationships have varying legal obligations and tax consequences.
As an independent contractor you run your own business, control your own working times and decide how and where you undertake work. It is likely that you also advertise your business, provide your own equipment and may pay others to carry out work on your behalf.
In contrast, as an employee you are subject to controls on how, where and when your work is performed. You are paid regularly and cannot pay someone else to do your work for you.
How do I know if I am an independent contractor?
The courts have adopted a multi-factor test to determine whether a person is an employee or independent contractor. No single issue will be determinative. However, courts will place greater weight on some matters, in particular, on the right to control the manner in which the work is performed.
In applying the test, a court will look at the whole relationship and make a decision on balance. Any written agreement stating the nature of a relationship as either employment or contractual is relevant but not conclusive.
Key indicators of employment relationship
The key indicators of an employee/contractor relationship, established under common law, are summarised in the table below:
|Factor||Indicative of Employment||Indicative of Independent Contracting|
|Do you have control over the way you perform a task?||No||Yes|
|Do you supply/maintain your own equipment?||No||Yes|
|Do you work standard hours?||Yes||No|
|Are you paid according to task completion, rather than receiving wages based on time worked?||No||Yes|
|Do you incur any loss or receive any profit from the job?||No||Yes|
|Do you accept responsibility for any defective or remedial work which was your doing?||No||Yes|
|Are you free to work for multiple entities simultaneously?||No||Yes|
|Do you accept that work lasts for the term of each particular task or contract?||No||Yes|
|Do you have the right to employ or subcontract any aspect of your work to another person?||No||Yes|
|Do you have the right to employ an apprentice or trainee in the execution of contracts?||No||Yes|
|Do you understand your arrangement to be a contract for services?||No||Yes|
|Is tax deducted by the hirer from your pay?||Yes||No|
|Do you provide your own public liability and sickness and accident insurance cover?||No||Yes|
|Do you receive paid holidays or sick leave?||Yes||No|
|Do you render tax invoices for payment?||No||Yes|
|Do you file GST returns?||No||Yes|
The outcome of this test is not determined by adding the number of factors and no one factor will be conclusive.
If in doubt, it is recommended that you seek independent legal advice.
In the instance of a dispute, it is the court that will ultimately decide whether the relationship is that of an independent contractor or an employee.