In May 2010 we published the blog Independent Contractors – Everything you need to know to minimise your risk which highlighted the complexity involved in determining whether a worker is an “employee” or an “independent contractor”. A recent case has once again highlighted the importance of determining the actual nature of the working relationship and we thought it timely to provide a re-cap on this topic.
There is currently no single definition or factor that determines whether or not an individual is an “employee” or an “independent contractor”. The recent case of Kuat Chee v Renown Business Solutions Pty Ltd  FWA 5137 (9 July 2012) concerned a dispute over redundancy pay entitlements between an employee and an employer who claimed they had less than 15 employees (thereby being classified as a small business) and were exempt from making redundancy payments. Consideration was given to previous decisions and the Court looked at all the circumstances of the working relationship between the employer and the two individuals working in the business who were presented as independent contractors.
Some of the circumstances that were considered included the following:
- Did the employer or workers have effective control over how and where the work was performed, including hours of work?
- Could the individuals undertake work for others and did they have their own places of work?
- Did the workers use their own or the employers’ tools and equipment?
- Were the workers able to delegate or sub-contract assigned work to others?
- Could the workers be disciplined or dismissed?
- Did the workers present to the world at large as employees? For example, by signing emails as employees of the business.
- Were the workers paid a wage or did they provide invoices for services provided?
- Were the workers paid a gross amount or was tax withheld before payment?
- Did the workers accrue and receive leave entitlements (e.g. annual leave and sick leave)?
The mere fact that a person has an ABN, or a contract that says that they are an “independent contractor”, does not mean that this individual is an “independent contractor”. Each relationship must be examined separately to determine whether or not it is a contract for “service” (an employee) or a contract for “services” (an independent contractor) with the overall test being whether the individual operates with independence, or as a representative of another business with little or no independence of operations.
In the case of Kuat Chee v Renown Business Solutions Pty Ltd it was ruled that the two individuals in questions were in fact employees and not contractors, despite them both claiming to be independent contractors to the business.
If you engage “independent contractors” in your business but are unsure of the true nature of the relationship, we recommend you take the time to complete the Independent Contractors Compliance Checklist. Importantly, should some aspects of the nature of the relationship indicate an employment arrangement, it is important not to just ignore the risks but to take appropriate action to deal with the risks head on. Sometimes risks can be minimised by making subtle changes to the way in which you operate and by formalising a written agreement with your contractors which clearly sets out each party’s obligations.
If you would like to know more about independent contractors, or for more information about how CompliSpace can assist you, please feel free to contact us on +61 (2) 9299 6105 (Sydney) / +61 (8) 9288 1826 (Perth) , by email at firstname.lastname@example.org, or visit us at www.complispace.com.au.
This blog is a guide to keep readers updated with the latest information. It is not intended as legal advice or as advice that should be relied on by readers. The information contained in this blog may have been updated since its posting, or it may not apply in all circumstances. If you require specific or legal advice, please contact us on (02) 9299 6105 and we will be happy to assist.