Incorrectly engaging a person as an independent contractor instead of an employee is unlawful and can have significant financial consequences. 

In the building and construction industry, there is a common misconception that engaging a person “on an ABN” means that the person is a genuine independent contractor. The question of whether a person is a contractor or employee (at law) is complex, and involves a consideration of numerous elements of the relationship, and how these operate in practice. The question of whether a person has an ABN is not a relevant consideration.

An employment relationship is more likely to exist where the worker:

  • performs work exclusively or almost exclusively for the business;
  • is under the direct control of the business and is required to perform work under its direction and supervision;
  • cannot delegate the work to others or engage a “subcontractor”;
  • works set hours, as required by the business;
  • is paid according to time worked (i.e. hourly) rather than according to the completion of a task;
  • uses tools and equipment that have been supplied by the business;
  • is not personally responsible for rectification work;
  • is required to wear clothing that identifies the name of the business;
  • does not bear any risk of loss, or have the ability to make a profit from the work.

A contractor relationship is more likely to exist where the worker:

  • regularly performs work for other businesses (or themselves);
  • performs work according to their own processes and is not under the direct control or supervision of the business;
  • engages other people (and pays them directly) to assist with the work;
  • does not work set hours and is free to refuse requests for additional work;
  • is paid according to the completion of a task (i.e. in accordance with a pre-prepared quote), rather than hourly;
  • provides their own tools and equipment, especially tools of significant value;
  • is responsible for rectification work at their own cost;
  • bears a risk of loss, or has the ability to profit from the work. 

There can be significant consequences for incorrectly engaging a person as a contractor, including financial penalties for breaching the “sham contracting” provisions in the Fair Work Act 2009. There can also be liability arising from: 

  • Unpaid employee entitlements (for example annual leave, long service leave and award entitlements);
  • Superannuation contributions;
  • Workers compensation;
  • Taxation (PAYG and payroll tax).

We can provide assistance to your business to minimise the risk arising from the engagement of independent contractors. This includes helping to identify the true nature of the relationship and preparing a written contract to minimise risks. We can also assist with the defence of claims or investigations where it is alleged that a contractor is or was an employee.