Reading time: 5 minutes

Independent contractors and employees can often be incorrectly classified. Sometimes, employers deliberately classify workers as independent contractors to avoid certain tax and superannuation obligations. In other instances, it is common that an inadvertent mistake has been made. As such, this article will debunk some common myths surrounding independent contractors by first explaining its legal definition, and then outlining some of their differences with employees.

What is an Independent Contractor?

Independent contractors are individuals or operating businesses that are hired to perform specific duties. The Independent Contractors Act 2006 (Cth) explicitly states that independent contractors are not limited to people. If a company, trust, or partnership has been engaged by a company, they will be considered contractors. The confusion often arises as it is the people within these organisations that carry out the work.

In particular, if the engagement is with an individual who also operates their own business (for example, as a sole trader), it is easy to see how that person could be confused for an employee. You will need to look at the particular working arrangement to determine the employment status of these individuals. These factors are set out below.

What is the Difference Between Independent Contractors and Employees?

The difference between independent contractors and employees can often be murky. Courts will look at the whole working relationship between the parties to determine the employment status of an individual. There is no single determining factor which separates the two.

Some factors that a court may consider include:

  • Payment (i.e. what is the method, basis and frequency?);
  • Commercial and financial risk (i.e. who bears the risk if something goes wrong?);
  • Tools and equipment (i.e. who provides them?);
  • Control over work (i.e. what freedom does the worker have about how the work is done?);
  • Independence (i.e. is the worker considered to be within the business?)

This list is by no means exhaustive. Certain factors may suggest one employment status over another, but they must be taken in their totality.

Myths About Independent Contractors

Due to the unclear definition of independent contractors, it is common for employers to make presumptions in favour of a contractor relationship. Here are nine common myths people associate with independent contractors:

1. You are an Independent Contractor If You Have an ABN

Having an ABN will not automatically make you an independent contractor. Employers may request your ABN in the hope they can plan their tax obligations and superannuation payments. As mentioned, the total working relationship determines whether you are an employee or a contractor.

2. Contracts Determine Whether You are an Independent Contractor

Contracts and agreements cannot override the law. Thus, if you are legally a contractor at law, the specific clauses in your contract suggesting otherwise will be void and severable.

3. Individuals With a Special Skillset or Qualification Are Contractors

It is a fallacy to assume that someone’s skill level or qualification determines their employment status. Skill and qualification level, including whether the worker is a ‘white’ or ‘blue’ collar worker, makes no difference and it is the whole working arrangement that determines whether you are an employee or contractor.

4. You are an Independent Contractor If You Do Not Get Paid Superannuation

This is a backwards approach to employment status. The superannuation status should not determine whether a worker is a contractor or employee. In any event, contractors who are paid for their labour (i.e. more than half the dollar value of their contract is for labour), whether it be physical, mental or artistic, are employees for superannuation purposes.

5. A Registered Business Name Makes You an Independent Contractor

Having a registered business name does not make you an independent contractor. For example, if John has a registered business name for a lemonade business he runs on the weekend, but performs work for an employer on the weekdays in the capacity as an employee, the employer cannot force John to become an independent contractor.

7. Everyone in a Particular Industry is an Independent Contractor

Industry practice does not determine employment status. For the most part, ‘everyone else’ should be ignored and the focus is on the worker and the employer.

8. You are Automatically a Contractor If You Only Work for a Short Period

The length of work and regularity of shifts makes no impact on the employment status of individuals. Both employees (especially casual employees) and independent contractors could be on call to work temporary, short, and infrequent shifts.

9. Invoicing Makes You an Independent Contractor

Workers who submit an invoice or ‘paid on invoice’ can be either an employee or independent contractor. Again, there is no determining factor, but it is the whole relationship that should be examined.

Key Takeaways

The fact is that it is okay to classify a worker as an independent contractor after assessing the entire working arrangement. However, it is a myth to assume the employment status of an individual based on single factors.

This article has debunked some popular myths surrounding independent contractors. However, if you are still unsure or have any questions, it is advisable you speak with a qualified employment lawyer. Contact LegalVision’s employment lawyers on 1300 544 755.


Redundancies and Restructuring: Understanding Your Employer Obligations

Thursday 7 July | 11:00 - 11:45am

If you plan on making a role redundant, it is crucial that you understand your employer obligations. Our free webinar will explain.
Register Now

How to Sponsor Foreign Workers For Your Tech Business

Wednesday 13 July | 11:00 - 11:45am

Need web3 talent for your tech business? Consider sponsoring workers from overseas. Join our free webinar to learn more.
Register Now

Advertising 101: Social Media, Influencers and the Law

Thursday 21 July | 11:00 - 11:45am

Learn how to promote your business on social media without breaking the law. Register for our free webinar today.
Register Now

Structuring for Certainty in Uncertain Times

Tuesday 26 July | 12:00 - 12:45pm

Learn how to structure to weather storm and ensure you can take advantage of the “green shoots” opportunities arising on the other side of a recession.
Register Now

Playing for the Prize: How to Run Trade Promotions

Thursday 28 July | 11:00 - 11:45am

Running a promotion with a prize? Your business has specific trade promotion obligations. Join our free webinar to learn more.
Register Now

Web3 Essentials: Understanding SAFT Agreements

Tuesday 2 August | 11:00 - 11:45am

Learn how SAFT Agreements can help your Web3 business when raising capital. Register today for our free webinar.
Register Now

Understanding Your Annual Franchise Update Obligations

Wednesday 3 August | 11:00 - 11:45am

Franchisors must meet annual reporting obligations each October. Understand your legal requirements by registering for our free webinar today.
Register Now

Legal Essentials for Product Manufacturers

Thursday 11 August | 11:00 - 11:45am

As a product manufacturer, do you know your legal obligations if there is a product recall? Join our free webinar to learn more.
Register Now

About LegalVision: LegalVision is a commercial law firm that provides businesses with affordable and ongoing legal assistance through our industry-first membership.

By becoming a member, you'll have an experienced legal team ready to answer your questions, draft and review your contracts, and resolve your disputes. All the legal assistance your business needs, for a low monthly fee.

Learn more about our membership

Need Legal Help? Submit an Enquiry

If you would like to get in touch with our team and learn more about how our membership can help your business, fill out the form below.

Our Awards

  • 2020 Innovation Award 2020 Excellence in Technology & Innovation Finalist – Australasian Law Awards
  • 2020 Employer of Choice Award 2020 Employer of Choice Winner – Australasian Lawyer
  • 2020 Financial Times Award 2021 Fastest Growing Law Firm - Financial Times APAC 500
  • 2020 AFR Fast 100 List - Australian Financial Review
  • 2021 Law Firm of the Year Award 2021 Law Firm of the Year - Australasian Law Awards
  • 2022 Law Firm of the Year Winner 2022 Law Firm of the Year - Australasian Law Awards