Contractor or Employee? The agreement is Crucial

Contractors are used by many businesses to fill personnel gaps or provide expertise that the business does not have or does not need on a regular basis.  Sham contracting is where an employer misrepresents the nature of the employment relationship.  It is prohibited under s 357 of the Fair Work Act 2009 (Cth) and civil penalties apply of up to $12,600 for breaches.  Moreover, if a contractor is found to be an employee, entitlements such as annual leave, superannuation contributions or a right to casual conversion become relevant (and costly).

Whether an individual is deemed a contractor or employee has traditionally been assessed looking at the totality of the relationship with regard to factors such as autonomy, provision of tools/equipment, hours of work, tax and superannuation (however in some circumstances contractors are regarded as employees under superannuation legislation).  The High Court has recently handed down two decisions (which have been affirmed in recent decisions made by the Fair Work Commissioner) that takes a different approach. These decisions now focus on the rights and obligations of the parties under a contract to determine whether a person is an employee or contractor.

The practical effect is that the relationship will be determined by what the contract says. In short, a written contract should accurately reflects the reality of the relationship and will be key in determining whether the individual is indeed a contractor or an employee. 

We have expertise in drafting and reviewing contractor agreements that properly document the relationship you have with individual contractors.  Moreover if you need advice on whether you are obliged to pay superannuation on your contractor’s behalf, please get in touch.