When is an Independent Contractor Really an Employee?

Independent contractors can be a cost effective way to structure or even supplement your workforce, for when times get busy. A business that has famously used independent contractors is Uber. They are currently the talk of the town. They use a concept that matches people who need a lift somewhere.... with a regular Joe who has a spare seat. Its critics will say it is just like a taxi service, but without any regulation or safety for passengers. Whatever you think of Uber (or don’t think of it, as the case may be) the startup has again made the headlines, this time some of its drivers have commenced an action in California claiming that they are employees of Uber, not independent contractors and should be paid reimbursements, such as fuel. The question of whether a person undertaking work for another is an employee or an independent contractor is one of the most frequently ask questions in employment law. From an employers point of view, using independent contractors over a traditional employee/employer relationship can be quite attractive- although often paid more on an hourly or piecemeal rate, there is no PAYG, compulsory superannuation contribution or insurances obligations. They can be utilised when the work is there. From an independent contractor’s point of view, it can be more flexible as a contractor can name their rate, hours and can knock back work if they chose to.

So what is the catch? Why don’t more work places use contractors? Not all industries have fluctuations in work load and need a steady work force. Contractors can cost more. And if an employer gets things wrong, by hiring contractors, that are essentially working as employees, things can get very expensive very quickly. The ATO will come knocking for PAYG, interest and possibly fines. APRA will also seek employee superannuation from you and when that is late, the fines can be steep. Because of uncertainty about when a contractor will actually be deemed an employee, many workplaces are hesitant to use contractors, however, don’t throw the baby out with the bathwater!

When using independent contractors, there are a few things that employers can do to make sure those contractors really are contractors:

  • Get legal advice tailored to your industry and specific work place. Maybe independent contractors are not going to work for you.
  • Use a detailed agreement that clearly sets out the employment relationship. This must be done by a lawyer who is up to date with employment issues and decisions.
  • Once you have your agreement in place- stick to it! It can be easy to fall into a employer/employee relationship.
  • Make sure your contractors have their own public liability and professional indemnity insurances and workers compensation insurance.
  • Don’t try to out-fox the tax-man- if the ATO thinks that there is a sham going on, they have wide reaching powers to decide that you are using employees and the range of penalties on offer can be great.

Do you need advice on a current independent contractor or hiring a new contractor? Talk to Coutts Solicitors & Conveyancers. Coutts have the experience and expertise to help your business get the most benefit out of hiring contractors.

Call Now on 1300 268 887 your first appointment is FREE (excluding contract reviews).