Who is considered a contractor under Australian law?
Published in: November 2017
It’s not an unusual occurrence in an Australian workplace to bump into a fellow employee who is a contractor. However, unlike ‘regular employees’ (for the lack of a better term), contractors inhabit their own category of employment and are governed by a different system of regulation concerning matters such as taxation, award conditions and unfair contracts. As a consequence of the unique status that a contractor holds, it’s important to be aware of how the status of a contractor is determined, and some of the legislation that may govern the role of contractors.
How to define a contractor
When trying to determine whether a person is an employee or a contractor, the courts will look to the circumstances of the relationship between the parties and may consider:
Employees are usually considered as an agent of the principal employer, and will be paid for the provision of labour, therefore, employees will be engaged under a contract of service. While in contrast, contractors generally act independently and an employer has vicarious liability for the actions of a contractor, therefore, contractors will be engaged under a contract for services instead.
The thing to keep in mind is that contractors are generally employed to perform a particular assignment, or to produce a specific result, and payment is based upon the completion of said assignment or result.
What are the factors in determining whether a person is a contractor?
In trying to establish whether a person is a contractor or an employee, the following factors will generally be considered:
· if the functions, or part of the functions, can be delegated or subcontracted;
· the person who gives the instructions relating to the work;
· the nature of the instructions relating to the work; and
· the freedom of action in the performance of the work.
Some other indicators that may point to a person being a contractor is, whether they own or maintain the tools or equipment required to undertake the work, whether there is a chance for profit, or alternatively, a risk of loss, and whether an invoice is provided to the other party upon the carrying out of the specified work.
The law and independent contractors
Contractors are protected by the Independent Contractors Act 2006 (Cth) (the Act) and the principal objects of the Act are:
· to protect the freedom of independent contractors to enter into service contracts; and
· to recognise independent contracting as a legitimate form of work arrangement that is primarily commercial; and
· to prevent interference with the terms of genuine independent contracting arrangements.
For the most part, contractors will be governed by federal legislation rather than any State or Territory laws and as a consequence, laws that govern whether a contract is unfair will exclude provisions such as s 106 of the Industrial Relations Act 1996 (NSW) for example, and instead, the Commonwealth Act will be applied.
For illustrative purposes, when determining whether a contract is unfair, the court will to s 15 of the Act in making a determination, and regard will be had to the following factors:
Do contractors have access to any awards?
Contractors will have access to benefits of the award system depending on whether the person is employed under a relevant award, and by the type of industry the contractor is engaged with.
Contact Eddy Neumann Lawyers on (02) 9264 9933 or