Independent contractors and employees
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Who is an employee? Who is an independent contractor?
The Independent Contractors Act 2006 in conjunction with the Fair Work Act 2009 protect the rights and entitlements of independent contractors.
There are a number of factors which may contribute to determining the difference between an employee and independent contractor. However, it is important to note that no single indicator can determine if a person is a contractor or an employee. Each determination is based on the individual merits of the work arrangement in place. Courts always look at the totality of the relationship between the parties when determining the status of a person's employment.
There are some common indicators that may contribute to determining whether a person is an employee or independent contractor:
|Degree of control over how work is performed
||Performs work, under the direction and control of their employer, on an ongoing basis.
||Has a high level of control in how the work is done.
|Hours of work
||Generally works standard or set hours (note: a casual employee's hours may vary from week to week).
||Under agreement, decides what hours to work to complete the specific task.
|Expectation of work
||Usually has an ongoing expectation of work (note: some employees may be engaged for a specific task or specific period).
||Usually engaged for a specific task.
||Bears no financial risk (this is the responsibility of their employer).
||Bears the risk for making a profit or loss on each task. Usually bears responsibility and liability for poor work or injury sustained while performing the task. As such, contractors generally have their own insurance policy.
||Entitled to have superannuation contributions paid into a nominated superannuation fund by their employer.
||Pays their own superannuation (note: in some circumstances independent contractors may be entitled to be paid superannuation contributions).
|Tools and equipment
||Tools and equipment are generally provided by the employer, or a tool allowance is provided.
||Uses their own tools and equipment (note: alternative arrangements may be made within a contract for services).
||Has income tax deducted by their employer.
||Pays their own tax and GST to the Australian Taxation Office.
|Method of payment
||Paid regularly (for example, weekly/fortnightly/monthly).
||Has obtained an ABN and submits an invoice for work completed or is paid at the end of the contract or project.
||Entitled to receive paid leave (for example, annual leave, personal/carers' leave, long service leave) or receive a loading in lieu of leave entitlements in the case of casual employees.
||Does not receive paid leave.
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How can the Fair Work Ombudsman help independent contractors and employees?
Fair Work Inspectors can investigate alleged sham contracting arrangements and prohibited conduct in relation to reform opt-in agreements.
Sham contracting arrangements
A sham contracting arrangement occurs where an employer attempts to disguise an employment relationship as an independent contracting arrangement. This is usually done for the purposes of avoiding responsibility for employee entitlements.
Under the sham contracting provisions of the Fair Work Act 2009, an employer cannot:
- misrepresent an employment relationship or a proposed employment arrangement as an independent contracting arrangement
- dismiss or threaten to dismiss an employee for the purpose of engaging them as an independent contractor
- make a knowingly false statement to persuade or influence an employee to become an independent contractor.
The Fair Work Act 2009 provides serious penalties for contraventions of these provisions. Employees and independent contractors can request assistance from the Fair Work Ombudsman if they feel their rights have been contravened.
Fair Work Inspectors can seek the imposition of penalties for contraventions of sham contracting arrangements and reform opt-in provisions. The courts may impose a maximum penalty of $12,600 for individuals and $63,000 for corporations, per contravention.
Fair Work Inspectors may also apply to the courts to grant an injunction or an interim injunction if an employer seeks (or threatens) to dismiss an employee for the purpose of engaging them as an independent contractor. The purpose of the injunction would be to prevent the dismissal from occurring, or otherwise remedy the effects. Courts can also make other orders to have the employee reinstated or compensated.
Some general protections provided under the Fair Work Act 2009 extend to independent contractors and their principals.
Independent contractors and principals are afforded limited workplace rights, and the right to engage in certain industrial activities. An independent contractor or principal is protected from adverse action by any person in relation to the decision to exercise or potentially exercise their rights under these provisions.
For more information on workplace rights, industrial activities, and what constitutes adverse action, please see the Protections at work fact sheet.
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Fair Work Online: www.fairwork.gov.au
Fair Work Infoline: 13 13 94
Need language help?
Contact the Translating and Interpreting Service (TIS) on 13 14 50
Hearing & speech assistance
Call through the National Relay Service (NRS):
- For TTY: 13 36 77. Ask for the Fair Work Infoline on 13 13 94
- Speak & listen: 1300 555 727. Ask for the Fair Work Infoline 13 13 94
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