Independent contractors

Closing Loopholes: Additional Fair Work Act changes

The Australian Government has made further workplace laws as part of its ‘Closing Loopholes’ changes.

This may affect the information on this page.

Learn more at Closing Loopholes: Additional Fair Work Act changes.

Independent contractors and employees have different rights and obligations. This means it’s important to understand the difference between the two.

Independent contractors provide services to another person or business. They aren’t employed by that person or business. Independent contractors usually negotiate their own fees and working arrangements and can work for more than one client at a time. Independent contractors are also called contractors or subcontractors.

The difference between independent contractors and employees

Whether someone is an independent contractor or an employee depends on a number of indicators. These include:

  • the amount of control over how work is performed
  • financial responsibility and risk
  • who supplies the tools and equipment
  • ability to delegate or subcontract work
  • hours of work
  • expectation of work continuing.

The table below has some of the common indicators and general examples of rights and duties that, when considered together, can help tell the difference between an employee and a contractor.

Some general things to note:

  • A contract can be verbal, in writing or a mix of both. Not all indicators will necessarily be present in the contract. There usually won’t be one deciding indicator. For example, just because you have to have an ABN or issue invoices doesn’t automatically make you a contractor.
  • It will come down to what is agreed to at or before the start of the working relationship. What happens after the contract has been agreed to will usually not be relevant to determining whether someone is a contractor or an employee.
  • A person won’t automatically be an employee or a contractor because of the type of work they do. A person may perform the same type of work as an employee of a business but may still be an independent contractor. This means that whether someone is an employee or an independent contractor will depend on the individual circumstances.
Contractual indicator of rights and dutiesEmployeeIndependent Contractor
Amount of control over how work is performed
(Note: the other factors below may form part of assessing the level of control over how work is performed)

Performs work under the direction and control of their employer. Work is controlled by the employer including hours, work location and how work is done.

For example:

  • a shop assistant who is required to follow their manager’s instructions about how to serve customers, display clothes and when to tidy the change rooms
  • a gardener who attends sites at the times directed by their boss and is told to mow the lawns in a particular way.

Has a high level of control over the work they perform, including their hours, work location and how they do the work.

For example:

  • a tailor who collects garments from clothing stores for alterations when it suits their schedule, makes alterations in the way they choose and works from their own premises
  • a gardener who chooses their preferred suppliers and decides how and when to provide the landscaping services.
Financial responsibility and risk

Has no financial risk (as this is the responsibility of their employer).

For example:

  • a baker who gets paid their regular daily wage even if the bakery doesn’t make a profit for that day. The employer carries the loss of the unsold baked goods.
  • a painter who spends a day painting a house, and gets paid by the employer for the work performed, even if the home owner has not yet paid the employer.

Carries the risk for making a profit or loss on each task or job. Is usually personally responsible and liable for poor work or any injury sustained while performing the task. Contractors generally have their own insurance policy.

For example:

  • a baker who supplies various baked goods to cafes but burns their croissants one day and can’t charge the cafes for the burnt croissants
  • a painter who paints a house in the wrong colour and doesn’t get paid by the client for the time and money spent.
Tools and equipment

Tools and equipment are generally provided by the employer, or a tool allowance is paid.

For example:

  • an office worker who has their computer provided for them
  • a cleaner who uses cleaning supplies provided by the employer.

Uses their own tools and equipment. (Note: alternative arrangements may be made within a contract for services.)

For example, an auditor who brings their own computer to do their work.

Ability to delegate or subcontract workIs required to do the work themselves. For example, they can’t ask someone else to go to their workplace and do their work for them.Can delegate or subcontract the services to be performed to another person or business.
Hours of work

Works standard or set hours (unless they’re a casual employee, in which case their hours may vary from week to week).

For example, a person who works regular 5 hour shifts twice a week at a petrol station.

By agreement between both parties, decides what hours to work to complete the specific task.

For example, a graphic designer who negotiates the cost of creating a logo based on how long it will take, and decides when they will do the work.

Expectation of work continuing

Usually has an ongoing expectation of work (note: some employees may be engaged for a specific task or specific period or on a casual basis).

For example, a worker in a pet shop who works on a part-time basis, 4 times a week on an ongoing basis.

Usually engaged for a specific task.

For example, a removalist who does a one-off house move for a customer.

Whether a worker is an independent contractor or an employee can be complicated, and will come down to the circumstances of each working arrangement. In some situations, a court may need to determine the nature of the working relationship. If it is not immediately clear whether someone is an employee or a contractor, you may want to consider seeking legal advice.

For various organisations that may be able to assist, see Legal help.

Example: Cleaning employee misclassified as a contractor

Peter has worked for a cleaning business for 7 months. His contract requires him to work 3 shifts a week and provides him with a fixed hourly pay rate. Peter is required under his contract to wear a shirt with the business logo while working, to keep a record of his start and finish times and fill out a timesheet at the end of each shift.

The contract also provides that Peter’s boss, Alfred, will give him all the cleaning supplies he needs, and requires Peter to perform his cleaning duties the way Alfred tells him the cleaning should be done. Alfred pays Peter’s tax, insurance and superannuation contributions, as set out in Peter’s contract.

Peter has an ABN, and his contract requires him to submit invoices in order to be paid for his work each month. However, Peter hasn’t been paid for the 60 hours he invoiced last month.

Peter looks at the information on fairwork.gov.au and notices that most indicators point towards him being an employee.

Peter isn’t sure how to raise the issue with Alfred, so he completes the Difficult conversations in the workplace online course. Peter arranges a meeting with Alfred to discuss the issue. Alfred apologises and pays Peter what he’s owed as an employee. Alfred corrects his records and ensures Peter receives his employment entitlements going forward.

Example: Independent contractor in the gig economy not entitled to sick leave

Gab uses her bike to deliver flowers for 3 delivery companies. She has her own ABN and gets her work from the delivery companies under service agreements to access work through their apps. Each of these service agreements provides:

  • how she can find work with each company,
  • how she chooses what work to undertake, and
  • how she will be paid for each delivery.

Gab is free to perform her work how she chooses, including how much, when she works and which app she uses.

Gab uses the apps to choose which deliveries she wants to make and when she wants to make them. Some weeks she makes two deliveries a week, other weeks she makes ten. Sometimes she gets work from multiple delivery apps on the same day. The apps keep a record of the deliveries she makes, and each pays her after every delivery.

When she’s delivering flowers, Gab wears her own clothes and doesn’t have a uniform. If she gets busy, she is allowed under each of the app service agreements to get someone else to make a delivery for her.

One day, Gab twists her ankle playing sport. Her doctor tells her she can’t ride a bike for 2 weeks. A friend tells her she could be entitled to sick leave.

Gab looks at the information on fairwork.gov.au and notices most indicators point towards her being an independent contractor, not an employee. This is because she has control over the hours she works and can work for different delivery companies. She uses her own bike to make deliveries and can subcontract the deliveries to someone else.

As an independent contractor, Gab isn’t entitled to sick leave. This is because independent contractors aren’t covered by the National Employment Standards.

Gab decides to take out insurance to cover herself if she loses income because of illness or injury again. Now that she understands she’s a contractor, she also looks into other financial arrangements, including paying her own superannuation and tax.

Sham contracting

Sometimes a business or individual may tell or represent to a worker that they are an independent contractor, when they are an employee of the business. This may be a sham contracting arrangement, unless the employer can prove that they reasonably believed the employee was an independent contractor.

It’s illegal to represent to a worker that they’re an independent contractor when the employer doesn’t reasonably believe this.

It’s also illegal to:

  • knowingly say something false to convince an employee to become an independent contractor to do the same work (or mostly the same work), or
  • dismiss or threaten to dismiss an employee to engage them as an independent contractor to do the same work (or mostly the same work).

Sham contracting arrangements are sometimes set up by employers to avoid paying legal entitlements to employees.

Courts can impose penalties against businesses or individuals for sham contracting. The maximum penalties for each contravention are:

  • $18,780 for individuals
  • $93,900 for businesses with fewer than 15 employees
  • $469,500 for businesses with more than 15 employees.

See What to do next if you think you’re in a sham contracting arrangement.

Example: Sham contracting

Leon owns a large manufacturing company.

Leon has engaged Scott for 12 months to fill in for an employee taking parental leave. Before Scott starts, Leon tells Scott that he’ll be a contractor and that he needs an ABN and to invoice the company to get paid. However, Leon knows that the proposed working arrangements indicate that Scott will be performing work as an employee. This includes that Scott:

  • will perform work under Leon’s direction and control
  • won’t be financially responsible for making a profit or loss
  • will be provided with the necessary tools and equipment to do his job
  • won’t be able to delegate or subcontract his work
  • will work set hours.

Leon says that Scott can’t be an employee because he’ll only be working for the company for a short time, but Leon knows this isn’t true and that he could employ Scott for a fixed term.

Scott works the same hours and performs the same job as the employee on parental leave. He begins to wonder why the company couldn’t hire him as a fixed-term employee.

Scott goes to our website and reads the information on independent contractors. He believes he has been incorrectly told he is a contractor when he is actually an employee.

Scott speaks to Leon about his concerns. Leon doesn’t agree and says that Scott is a contractor. Scott considers calling our Infoline to discuss his situation.

Independent contractor entitlements and where to get help

Independent contractors don’t get employee entitlements, such as annual leave, sick leave, and minimum rates of pay. Independent contractors are also responsible for paying their tax and GST (if applicable) to the ATO, and generally pay their own superannuation.

Independent contractors are protected from adverse action, coercion and abuses of freedom of association. See Protections at work for more information.

Getting paid

Since independent contractors aren’t employees, they don’t have a minimum wage or pay rate. Instead, independent contractors usually negotiate payment as part of their contract for the services they provide.

An independent contractor will usually submit an invoice when they need to be paid. They can be paid on a regular basis or at the end of the contract or project.

If an independent contractor doesn't get paid for an invoice, they can take their own legal action or seek independent legal advice. The FWO can’t enforce payment of unpaid invoices.

For support resolving disputes, you can contact the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) who can help with issues such as recovering unpaid invoices.

Security of payment

Security of payment refers to a building contractor’s right to receive payments that are due under their contract. Each state and territory has its own security of payment laws that provide a statutory mechanism for resolving payment disputes.

The agencies listed below can provide information on relevant laws, details or adjudicators for payment delays and disputes in each state or territory.

Tax and super

Since independent contractors provide services to another person, they need to pay their own income tax on money they earn (to comply with tax laws) and may need to pay GST. For more information on tax visit the Australian Taxation Office.

As well as paying their own tax, independent contractors may need to make their own superannuation contributions. There are exceptions to this, such as when a contractor is hired wholly or principally for labour. In this case, the person that hired them is responsible for paying their superannuation. For more information on when superannuation is paid by the contractor or the hirer, visit the Australian Taxation Office.

What to do next if you think you’re in a sham contracting arrangement

We can help employees who think they’ve been incorrectly engaged as an independent contractor, including if they think they’re in a sham contracting arrangement. You can call us to speak to an adviser between 8am and 5:30 pm, Monday to Friday. See Contact us.

Independent contracting laws

The Independent Contractors Act 2006 sets up a national unfair contracts remedy scheme for independent contractors. Contractors can ask a court to review, change or set aside a contract if it is harsh or unfair. Visit business.gov.au – contractor rights and protections for more information.

Related information