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Contractor vs Employee

Have you really engaged a contractor? Or have you actually hired a new employee? You might not have considered the new rules.

You need to be sure of the position. There are different obligations depending on the situation. If you are the “employer” you can be personally liable to who you may have thought was a contractor but is actually an employee if those obligations are not met.

If a dispute occurs you need to know your position.

The Test

The test used by the Courts has now changed. The Court used to only consider who had more control to determine if the relationship was an employee or that of a contractor.

The Courts consider 5 key factors in determining if someone is a contractor or an employee:

  1. Control; Greater control by the boss indicates employee relationship, whilst an employer exercising little control indicates a contractor;
  2. Payment; payment on a regular basis (employee) as opposed to payment for particular service (contractor);
  3. Delegation; Contractors can delegate work to others, an employee does the job personally;
  4. Commercial risks; contractors carry their own insurance and bears the cost of the defects in their work – usually an employee does not; and
  5. Responsibility for equipment; contractors pay for their equipment, employees are supplied with equipment or are reimbursed.

This new test blurs the line.

What you need to do

Employers need to exercise caution as failure to do so may result in the employer’s liability for:

  • Superannuation;
  • Payroll tax;
  • Holiday leave and sick leave;
  • Workers compensation;
  • Back pay;
  • Unfair dismissal; and
  • Long Service leave.

Employees also need to be aware of their obligations and rights.

There is no obligation for the above to be paid for contractors – but there is for employees.

AustAsia Legal Pty Ltd can assist you with preparing the relevant documents to ensure the relationship is properly recorded.

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Important information and disclaimer

This publication has been prepared by AustAsia Group, including AustAsia Legal Pty Ltd (ACN 123 160 476).

AustAsia Legal Pty Ltd – Liability limited by a scheme approved under Professional Standards Legislation.

Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Accordingly, reliance should not be placed on the information contained in this document as the basis for making any financial investment, insurance or other decision. Please seek personal advice prior to acting on this information.

Information in this publication is accurate as at the date of writing, 18 October 2017. Some of the information has been provided to us by third parties. Whilst it is believed the information is accurate and reliable, the accuracy of that information is not guaranteed in any way.

Opinions constitute our judgement at the time of issue and are subject to change. Neither the Licensee nor any member of AustAsia Group, nor their employees or directors give any warranty of accuracy, nor accept any responsibility, for any errors or omissions in this document.

Any general tax information provided in this publication is intended as a guide only and is based on our general understanding of taxation laws. It is not intended to be a substitute for specialised taxation advice or an assessment of your liabilities, obligations or claim entitlements that arise, or could arise, under taxation law, and we recommend you consult with a registered tax agent.

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