Independent Contractors

For businesses engaging independent contractors, it’s important that they understand the differences between contractors and employees as there are different rights and obligations associated with each category of worker.

In summary, independent contractors provide services to other businesses but are not employees. Generally, independent contractors:

have a high degree of control over how, when and where work is performed
provide their own tools and equipment to perform work
can subcontract work to be performed by another person or business
are usually engaged for a specific task or project
run their own business and carry any risk of profit or loss on each job
have their own insurance policies, such as public liability insurance, look after their own tax obligations and make their own superannuation contributions
usually provide a quote for work and submit an invoice to be paid
do not have minimum workplace entitlements, such as minimum rates of pay, except they are protected from adverse action, coercion and abuses of freedom of association.

Note, in some instances super may be payable by a business who engages an individual contractor if the contract is principally for their labour.

On the other hand, employees perform their work under the direction and control of their employer. Generally, employees:

have their hours, work location and processes for how work is performed determined by their employer
have tools and equipment to perform work provided to them by their employer
are engaged on an ongoing basis (except for casual employees)
have minimum workplace protections and entitlements provided for by the Fair Work Act, National Employment Standards, and modern awards
are in most instance entitled to receive superannuation by their employer, have tax withheld from their pay by their employer and are not required to have their own insurances for work.

In determining whether a worker is an employee or contractor consideration will generally be given to the arrangement in its totality rather than any single indicator.

Employers face significant penalties for engaging a worker as an independent contractor when they are actually an employee. This is known as sham contracting and the Fair Work Act does not permit an employer misrepresenting employment as an independent contracting arrangement or dismissing or threatening to dismiss an employee to engage them as an independent contractor. Employers may be subject to penalties for engaging in sham contracting, with a maximum penalty of $18,780 for individuals and $93,900 for businesses. In addition, employers may be required to backpay employee entitlements, such as leave, minimum rates of pay, penalty rates, superannuation, etc.

For further information about the difference between employees and contractors, you should refer to: