[ Employment Law Tip ]
Employees vs Contractors–What's the difference?
Why Does It Matter?
Whether a worker is working as an employee or a contractor is an important distinction to make. Employees and contractors are entitled to different benefits and rights, and they each owe varying duties and obligations.
Understanding the Differences Is Crucial for Your Benefits and Rights
The mere existence or absence of an employment contract does not determine whether a relationship between a worker and instructor constitutes one of employment or not. Rather, the circumstances of nature and operation of the work must be considered.
On its surface, employees are workers who are engaged by an employer as an exclusive member and representative of the employer’s business. Employees do not perform work as an independent entity from the employer’s business, but are part of the business in this regard. Employers therefore have control over the employee’s working hours, and a high degree of input and influence into the method and procedure in which work is performed and completed. Related to this, employers will tend to provide employees with the equipment or tools required to complete the work, or if the employee provides such materials, the employer will generally reimburse the employee or provide an allowance. Furthermore, employers are generally vicariously liable for any loss caused by their employees in the course of their work.
On the other hand, contractors are essentially individuals who run and operate their own business. They are separate from the hiring business that they perform work for. In this regard, contractors are generally free in their own liberty to engage with as many businesses as they wish. Contractors provide and utilise their own equipment and tools required to complete the work, and they usually maintain control and influence over their methods of completing the work. They are paid in accordance with a quotation that they provide for the work to be completed, whether that be based on an hourly rate or a per piece price. Contractors are commercially liable for their losses and any damage caused requiring rectification.
Sham Contracting
Employment relationships are determined by reference to the circumstances and nature of the work itself. Although in most instances you will be consciously aware of whether you are working as an employee or a contractor, there may be situations where it is ambiguous or unclear.
Employees are entitled to benefits such as superannuation and leave whereas contractors are not. An employer may purport to disguise an employment relationship by instructing its employees to work via an ABN and advising them that they are contractors rather than employees. Where an employer engages in such arrangement, it is commonly referred to as a “sham arrangement”, and it is a contravention of the Fair Work Act 2009 (Cth).
If you believe that you have been a subject of a sham arrangement, or if you require further advice as to your status, please contact our team of Employment Law Experts at Park & Co Lawyers.
