If you are an employer, it is important to note that the High Court recently delivered two major decisions relating to the classification of independent contractors. This has resulted in greater certainty for both employers and independent contractors as to the nature of their working relationship. It was previously the case that the entire working relationship between parties would determine whether an employment relationship exists. However, the Court has now accepted that a written agreement can generally determine whether a person is an employee or an independent contractor. Irrespective of these recent changes, there are still several common myths surrounding independent contractors. This article will take you through nine of these myths.
What is an Independent Contractor?
Independent contractors are individuals or businesses that you hire to perform specific duties. Ultimately, independent contractors are not limited to people. If you engage a company, trust, or partnership, the law could consider these entities as contractors.
What is the Difference Between Independent Contractors and Employees?
The difference between independent contractors and employees was previously quite murky. However, courts will now look at the written agreement between the two parties to determine an individual’s employment status. Some key factors that should be considered when making this assessment include:
- terms of engagement as set out in a written agreement between the parties;
- any variations of these agreements; and
- documents relating to the recruitment of independent contractors.
Myths About Independent Contractors
There are some common myths people associate with independent contractors that you should be aware of.
1. You Are an Independent Contractor if You Have an Australian Business Number (ABN)
Having an ABN will not automatically make someone an independent contractor. You may need to request an ABN from someone in the hopes that they can plan their tax obligations and superannuation payments. As mentioned, the terms of the engagement determine whether someone is an employee or a contractor.
2. The Nature of the Relationship Determines Whether You Are an Independent Contractor
Previously, the courts considered the totality of the relationship to determine if an individual was an independent contractor or an employee. However, the High Court has recently found that the most important consideration in determining whether an independent contractor relationship exists depends on contractual terms and conditions. Therefore, the parties’ relationship must be assessed based on any written agreements in place.
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. Instead, it is the nature of the agreement that determines if someone is an independent contractor.
4. You Are an Independent Contractor if You Do Not Get Paid Superannuation
Superannuation status does not determine whether a worker is a contractor or an employee. In any event, contractors you pay for their labour, whether 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 someone 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, you 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 should solely be on the worker and the employer’s agreement when determining whether a worker is an employee or a contractor.
8. You are Automatically a Contractor if You Only Work for a Short Period
The length of work and regularity of shifts does not impact a person’s employment status. 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 employees or independent contractors. Again, there is no determining factor, but the whole relationship should be examined.
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Key Takeaways
While it was previously the case that the entire working relationship between parties would determine whether an employment relationship exists, it has now been accepted that a written agreement can generally determine whether a person is an employee or an independent contractor. Regardless, some critical myths about independent contractors that persist include that:
- they have their business number or name;
- specific skill sets or qualifications can determine employment status;
- they do not get paid superannuation;
- everyone in certain industries is an independent contractor;
- they work short periods; and
- they invoice for their work.
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Frequently Asked Questions
Independent contractors are individuals operating businesses that you hire to perform specific duties. Therefore, the relationship between the two parties should be assessed when determining if someone is an independent contractor.
Some key myths about independent contractors include that they have their business number or name. It is also a myth that specific skill sets or qualifications can determine employment status and that independent contractors do not get paid superannuation.
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