Answer:
It is not always easy to figure out whether your workers are employees or independent contractors. But it is important to know the difference, because different laws apply depending on the classification. If your workers are independent contractors, the Independent Contractors Act 2006 (Cth) (‘the Act’) will apply.
The Act
The Act applies to both:
- businesses who engage independent contractors; and
- contractors themselves.
The Act articulates the finer details of this relationship, including what the commercial services contract should look like. The goal of the Act is to promote the very independence of independent contractors who enter into these arrangements. It sets out their rights and entitlements, as well as their liabilities.
Services Contracts
An independent contractor is engaged using a services contract which details what work is to be provided. Under the Act, a services contract is one where:
- at least one party is Australian; and
- the business carries on work in Australia.
This sort of contract looks very different to an employment contract. It does not contain the entitlements owed to employees such as annual salary or paid leave. Rather, it is a business-to-business contract.
Unfair Contracts
You cannot put whatever terms you like in a services contract. The Act provides a list of grounds on which a contract may be considered unfair, including if the contract contains terms that are:
- harsh or unconscionable;
- unjust;
- against public interest;
- contradictory to Australian industrial laws, or another modern award or enterprise agreement; and
- payment terms which specify a rate less than what would be appropriate for an employee doing similar work.
3. Contractor or Employee?
The distinction between employees and contractors can often seem hazy. Remember that a key indicator of an independent contractor is their independence. When determining if your worker is a contractor or not, think about the following factors:
- Do they have control and independence over how and when the work is performed?
- Are there regular hours of work?
- Is work ongoing, or for a specified period of time?
- Does the worker provide their own equipment to perform the work?
Getting legal advice will provide you with the clearest guidance on what classification your worker falls under.
Tip: Take the time to figure out how your workers are engaged, because you must avoid sham contracting. Ignorance is no excuse if the Fair Work Commission investigates your business and discovers that the workers you are engaging as contractors are in fact employees.
