Employee or Independent contractor?

Employers are you breaking the law – do you have Employees or Independent contractors?

Kate Bell reports that, in a past edition of BDAV News, we provided an overview of sham contracts. We have had some queries at the BDAV Help Desk over the last month – both from employers seeking guidance on employee/independent contractors and also recent graduates who have been offered contracts, – so we thought we would remind employers, employees and independent contractors of their responsibilities.

The following information is available on the Fair Work website:

Independent contractors

Independent contractors run their own business. They usually negotiate their own fees and working arrangements and can work for more than one client at a time. Independent contractors are often called contractors or subcontractors.

The difference between contractors and employees

Independent contractors have different obligations and rights to employees because they are running their own business. This means it’s important to understand the difference between the two.

There are a number of things that can help you tell the difference between an employee and a contractor. There isn’t one that makes a difference on its own – you need to consider everything together.


The factors that are indicative of an employee are that they:

  • have their work directed and controlled by their employer;
  • work set or standard hours (casual employees hours can vary from week to week);
  • usually have an ongoing expectation of work;
  • bear no financial risk – it’s covered by their employer’s insurance;
  • are entitled to superannuation contributions from their employer;
  • are provided by their employer with tools or a tool allowance is provided;
  • have income tax deducted by their employer;
  • are paid wages or a salary regularly;
  • are entitled to paid leave.

Independent contractors

The factors that are indicative of independent contractors are that they:

  • have a high level of control over how the work is done, including the choice to hire others to assist;
  • agree to the hours required to complete the job;
  • usually engaged for a specific task or time;
  • bear the risk of making a profit or a loss and usually bear responsibility and liability for poor work or injury and usually have their own insurance;
  • generally pay their own superannuation;
  • use their own tools and equipment;
  • pay their own tax and GST;
  • have an ABN and submits invoices;
  • don’t receive paid leave.

You need to consider all of these factors when working out whether you are an employee or an independent contractor. There won’t be one thing on its own that decides whether you are an employee or an independent contractor. Just because you have an ABN or issue invoices doesn’t automatically make you an independent contractor.

Independent contractors can also do the same type of work as an employee of the business they are doing work for and still be an independent contractor. A person won’t automatically be an employee or an independent contractor because of the type of work they do.

Sham contracting

Sham contracting is where a person working as an employee is told they are an independent contractor when they’re not. They will also be treated like an independent contractor in some ways, for example they may be required to have an ABN and submit invoices.

Sham contracting is illegal. It’s illegal to:

  • claim an employee is an independent contractor;
  • say something false to convince an employee to become an independent contractor;
  • dismiss or threaten to dismiss an employee if they don’t become an independent contractor;
  • dismiss an employee and hire them as an independent contractor to do the same work.

Sham contracting can be done intentionally or carelessly by an employer. These types of arrangements are sometimes set up by employers who are seeking to avoid responsibility for paying legal entitlements to employees.

For more information, go to the Fairwork website, by CLICKING HERE.