Understanding the difference between an independent contractor and an employee is a problematic area of employment and related laws.

Independent contractors are defined as their own bosses and therefore work for themselves. Meanwhile, employees work in a business and are paid a wage. The business controls how, what, where and when they work.

What’s in a title?

Your business can also hire a contractor directly as an individual.  They may be workers with specialist skills who prefer a contract arrangement, particularly if they have other clients.

This is where it can get tricky as businesses still have obligations and liabilities under the law. They must still uphold their obligations regarding payroll tax, PAYG withholding tax, superannuation, and workers’ compensation.

Determining if you have an employee or contractor

To determine if you have an employee or contractor, apply the common-law test. It relies on identifying several factors that may apply to the working relationship. Some of these factors include:

• Whether the worker works exclusively for you or multiple clients.
• Responsibility for work hours set, payment of wages and taxes paid,
• If the worker has access to tools and equipment and has the power to delegate work.
• Who is responsible for rectifying poor workmanship, and the risks of loss as a result.

Contractor rights and protections

Under the Fair Work Act 2009, contractors have workplace rights and protections. Both the contractor and proposed contractor have protection from coercion, adverse action, and abuses of freedom of association if they engage in industrial activities or exercise a workplace right.

Workers’ compensation requirements

To recap, the law tends to regard pseudo contractors as employees, so your business must take out workers’ compensation to cover them for any work-related issues. However, some contractors or self-employed staff will need to take out their own insurance cover. Sub-contractors will also need to work out if they are covered by your workers’ compensation policy. Look to the dollar amount of cover and policy exclusions, too.

If you would like to know more about having the right workers insurance cover, please CLICK HERE or contact us for more information.