Employee or contractor
There is widespread practice in the building industry for workers to be engaged as contractors, rather than as employees. Understanding the differences between these two types of engagement is crucial for both independent contractors and their hirers to ensure the arrangement is lawful.
The differences can affect matters such as:
- Tax and superannuation obligations
- Intellectual property ownership
- Insurance requirements.
The Independent Contractors Act 2006 provides a statutory definition of ‘independent contractor’ which reflects the common law test. In addition, the Fair Work Act 2009 includes laws to prevent sham contracts. Parties to sham contracts may incur civil penalties (fines) under these Acts.
Definitions under common law
Common law defines an independent contractor as a person who works under a commercial contract or a ‘contract for service’. The independent contractor can operate as an individual or through a partnership, company or trust.
An employee is defined as a person who works under an employment contract or a contract of service.
At common law, if one party can control the way the work is performed, where and when it is performed, and by whom, then the contract is more than likely an employment contract.
What is the common law test?
Over time, the courts have used a number of tests that can help determine what it means to be in ‘control’ and, therefore, whether the worker is an employee or contractor at common law. No one test determines whether control exists. Rather, the courts have developed a process that weighs up all of these tests to decide if, on balance, control exists or does not exist.
The main tests are indicated by the questions in the table below. If the answer to the majority of these questions is ‘yes’, then the person will more than likely be an independent contractor.
If the answer to the majority of these questions is ‘no’, then the person will more than likely be an employee and you should engage them as such.
Common law test questions
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Need more information?
Our experienced team can give you information or advice on wages, employment conditions, WorkCover requirements and dispute resolution.
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