The difference between a contractor and an employee is not always clear cut. In legal terms, the relationship between you and your employee is a contract of service but the relationship between you and an independent contractor is a contract for service. In practical terms, it depends on a few different factors.
An employee usually works full-time, part-time or casually and has to work as the employer directs them. A contractor usually works the hours required to do a task and has more control over the way they work. But even these factors are not enough to decide whether someone is an employee or contractor.
A court or tribunal looks at the full picture (totality of the relationship) and all possible factors (the multi-factor test):
An individual may be seen as a contractor under the Fair Work Act – not entitled to annual leave or other entitlements – but an employee for workers compensation and superannuation purposes.
If you incorrectly categorise an employee as an independent contractor, this can be seen as a sham contracting arrangement. Sham contracting is a breach of obligations under employment law, such as leave entitlements or termination payments, and under laws about tax, insurance and superannuation. This means you have to dispel all doubt about who is an employee and who is a contractor at the start.
Employsure advisers can take the confusion out of employing contractors or employees.
For peace of mind, please call our 24 hour Advice Line now on 1300 651 415.