Statutory Test for Contractors

There is always a risk when engaging individuals over entities because the nature of any employment relationship is between an employer and an individual. This often begs the question - are they a contractor or an employee? The Federal Government recently introduced new rules which requires consideration of all parts of the working relationship between the parties. This includes the terms of the contract and how the contract is performed in practice. This is a change from the existing common law test, which focuses mainly on the terms of a contract. The legislation will require that contractors will need to have the characteristics of a contractor at common law both in contract and in the totality of the commercial relationship including:

a. to have a high level of autonomy and control over how and when the work is performed;

b. take on the risk (i.e. have their own insurance) and take on the risk of poor performance;

c. use their own materials/equipment to deliver the services i.e. use their own computer and use their own emails;

d. have the ability to delegate or subcontract their work; and

e. be engaged for a specific task.

If you anticipate that this will be at odds with what you want to occur in practice, a contracting arrangement may not be appropriate. The risk being that a Court could decide that an employee is actually an employee and therefore entitled to all employee benefits such as paid leave, and any entitlements that may be relevant under a modern award.

Under the new changes, Contractors can opt out of the definition (of an employee) if they exceed the high-income threshold. This means that any independent contractor who earns above the high-income threshold can in effect, through notices agree that they are not an employee.