AM I AN EMPLOYEE OR INDEPENDENT CONTRACTOR?

Seems like an easy question but there is more to it than you might think.

The fact that you ....

  • have an ABN;
  • provide your services to more than one entity; or
  • carry on your own business,

does not necessarily make you a contractor.

The true nature of your contractual relationship can only be determined by referring the facts and circumstances of your arrangement to common law and distinguishing whether you are engaged in a ‘contract of service’ or a ‘contract for services’.  An employee provides services under a contract of service and an independent contractor under a contract for services.

Relevant laws are in place to ensure that genuine independent contractors are not treated as employees and to protect genuine employees from being treated as independent contractors.  It is important to get the distinction correct because the employer/employee and payer/contractor relationships have varying legal obligations and tax consequences.

As an independent contractor you run your own business, control your own working times and decide how and where you undertake work. It is likely that you also advertise your business, provide your own equipment and may pay others to carry out work on your behalf.

In contrast, as an employee you are subject to controls on how, where and when your work is performed.  You are paid regularly and cannot pay someone else to do your work for you.

How do I know if I am an independent contractor?

The courts have adopted a multi-factor test to determine whether a person is an employee or independent contractor. No single issue will be determinative. However, courts will place greater weight on some matters, in particular, on the right to control the manner in which the work is performed.

In applying the test, a court will look at the whole relationship and make a decision on balance. Any written agreement stating the nature of a relationship as either employment or contractual is relevant but not conclusive.

Key indicators of employment relationship

The key indicators of an employee/contractor relationship, established under common law, are summarised in the table below:

Summary of Common Law Test

Factor Indicative of
Employment
Indicative of
Independent Contracting
Do you have control over the way you perform a task? No Yes
Do you supply/maintain your own equipment? No Yes
Do you work standard hours? Yes No
Are you paid according to task completion, rather than receiving wages based on time worked? No Yes
Do you incur any loss or receive any profit from the job? No Yes
Do you accept responsibility for any defective or remedial work which was your doing? No Yes
Are you free to work for multiple entities simultaneously? No Yes
Do you accept that work lasts for the term of each particular task or contract? No Yes
Do you have the right to employ or subcontract any aspect of your work to another person? No Yes
Do you have the right to employ an apprentice or trainee in the execution of contracts? No Yes
Do you understand your arrangement to be a contract for services? No Yes
Is tax deducted by the hirer from your pay? Yes No
Do you provide your own public liability and sickness and accident insurance cover? No Yes
Do you receive paid holidays or sick leave? Yes No
Do you render tax invoices for payment? No Yes
Do you file GST returns? No Yes