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This chapter is an extract from LegalVision’s Online Business Manual. Download the full guide here.

Although your team may begin with just you, you’ll soon bring on board team members. When growing your team, the first thing you need to consider is whether they are an employee or contractor. Taxation, superannuation and employment law obligations differ for each and this issue can get business owners into trouble. Some factors that determine whether a worker is a contractor or employee are set out below.

An Employee or Contractor?

  • Control: Does the hirer have the right to exercise detailed control over the way work is performed or does the worker have full autonomy?
  • Advertising the business: Is the worker required to wear a uniform or display material that associates them with the hirer’s business?
  • Provision and maintenance of significant tools and equipment: Is the worker required to supply and maintain any tools or equipment (especially if expensive)
  • Right to delegate or subcontract work: Is the worker free to work for others at the same time? Can the worker subcontract the work or delegate work to others?
  • Income taxation deductions: Is taxation deducted by the hirer from the worker’s pay?
  • Remuneration: Is the worker paid according to task completion, rather than receiving wages based on time worked?

Sham Contracting

You can’t call a worker a contractor while treating them as an employee (also known as ‘sham contracting’). There are possible ATO and Fair Work penalties if you mischaracterise workers to avoid employment law obligations. If you are unsure, use the employee/contractor decision tool on the ATO’s website to determine whether your team member is an employee or a contractor.

Employment Agreements

Employees all need employment agreements. Your employment agreement should address a number of standard issues including:

  • intellectual property;
  • non-compete provisions; and
  • leave requirements.

Contractor Agreements

Contractors need contractor agreements. Your contractor agreement should address a number of standard issues including:

  • scope and delivery of the project;
  • ownership and use of intellectual property;
  • non-compete provisions; and
  • confidentiality.

If you have any questions about how you can grow your team or whether your new hire is a contractor or an employee, you can contact LegalVision’s online business lawyers by calling 1300 544 755 or filling out the form on this page.

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