Business owners are often unsure whether their staff should be treated as contractors or as employees.
Misunderstanding of the rules arise, especially where arrangements do not neatly fit into either category, or researching rules that apply for certain purposes.
Features that generally indicate employee status:
- The contract is for the labour of a particular person (rather than being for a particular task where they could engage others to help them)
- The employer controls when, where and how the work is done
- The employer provides the necessary equipment and materials
- Where there are no other customers (although not altogether conclusive)
- Remuneration is time-based rather than results-based
- Risk remains with the employer.
There is no conclusive test as to whether an arrangement is an employment relationship or a contract. These are indicators in determining how the relationship should be regarded.
An employee relationship (based on the facts including previous points) cannot be changed merely by documenting a contract arrangement through legal agreements, invoices etc. The employer will still be liable under employment law for long service and other leave entitlements, unfair dismissal, tax withholding obligations etc.
A legitimate contractor relationship still needs to be engaged with care. Workers’ compensation, superannuation and payroll tax all require certain contractor payments to be treated as employee payments, but they apply different tests.
Example: A contractor trading through a company That doesn’t require workers’ compensation, but is liable for superannuation and payroll tax purposes as being employed for labour only.
Designing how contracts are established from the outset is key in managing your obligations. At the point of entering into the contract you need to know what the implications are in all these areas. Education, care and good advice are essential.