Understanding Independent Contractors

What Are Independent Contractors?

Independent contractors, also known as contractors or subcontractors, work for themselves by providing services to another person or business. Unlike employees, contractors negotiate their own fees and working arrangements and can work for multiple clients simultaneously. They do not have the same rights and obligations as employees.

Key Differences Between Contractors and Employees

Understanding the distinction between contractors and employees is crucial for both parties. Contractors provide services for another business or person instead of being employed by them. They usually negotiate their own fees and working arrangements and can work for more than one client at a time. Contractors do not have the same rights and obligations as employees

Confirming Contractor Status

From August 26, 2024, the criteria for determining whether someone is a contractor or an employee have changed. For constitutionally covered businesses, the "whole of relationship test" applies from this date, while the "start of relationship test" applies to engagements before this date

• Whole of Relationship Test: This test considers the real substance, practical reality, and true nature of the relationship, including how the contract is performed in practice.

• Start of Relationship Test: This test focuses on what the parties have agreed upon, as set out in the contract and any later variations

  
  

Factors to Consider

When determining if a worker is a contractor or an employee, several factors are considered:

• The amount of control the business has over how work is performed.

• Who holds financial responsibility and risk.

• Who supplies the tools and equipment.

• The worker’s ability to delegate or subcontract work.

• How hours of work are set.

• Any expectation of work continuing indefinitely

  
  

Sham Contracting

Sham contracting occurs when a business misrepresents an employee as a contractor without a reasonable belief that the worker is a contractor. This practice is illegal and can lead to significant penalties

Entitlements and Support

Contractors and those engaging them should be aware of their entitlements and where to find support. For more detailed information, visit the Fair Work Ombudsman’s page on independent contractors.

Note: This information is general guidance and does not constitute legal advice. Seek independent advice before taking any action based on this article.