Introduction and disclaimer
This information sheet is intended as a guide only to the law in Western Australia. It explains the difference between employees and independent contractors and the legal requirements which apply. It is not a substitute for professional legal advice.
Why is the difference between employees and independent contractors important?
Employees have statutory entitlements to minimum wages and conditions. Employers must deduct PAYG tax from remuneration paid to employees. Employees may also have rights to challenge their dismissal. This is not the case for contractors.
In many areas, however, the obligations of a person using the services of a contractor (principal) as opposed to an employee are the same. The obligation to provide the worker with a safe workplace is the same. In some cases, the principal must ensure that the contractor is covered by a workers’ compensation policy. In other cases, the principal must make Superannuation Guarantee contributions on behalf of the contractor.
Is a worker an employee or a contractor of the principal?
If another entity is supplying the principal with a tax invoice for the worker’s services then the worker is unlikely to be an employee of the principal.
If the worker is a sole trader supplying the principal with a tax invoice for his or her services, this will be a good indication that the worker is engaged by the principal as an independent contractor. If, however, a court or tribunal is asked to verify the contractor status of the worker, it will look at a range of indicators to determine the practical reality of the relationship. The fact that the principal has made a written contract designating the worker to be an independent contractor will be important, but not conclusive.
The table below contains some of the indicators that courts and tribunals have considered to be relevant in determining whether a worker is an independent contractor or an employee.
| Indicia | Independent Contractor | Employee |
|---|---|---|
Does the 'employer' exercise, or have rights to exercise, control over the manner in which work is performed, place of work, hours of work etc? NB The absence of control is not a strong indicator that a worker is an independent contractor where there is a high degree of skill and expertise. | No | Yes |
| Does the worker perform work for others (or have a genuine and practical entitlement to do so)? | Yes | No |
| Does the worker have a separate place of work and/or advertise his or her services to the world at large? | Yes | No |
| Does the worker provide and maintain significant tools or equipment? | Yes | No |
| Can the work be delegated or sub-contracted? | Yes | No |
| Does the 'employer' have the right to suspend or dismiss the worker? | No | Yes |
| Does the 'employer' present the worker to the world at large as an emanation of the business eg is the worker required to wear the uniform of the employer? | No | Yes |
| Does the 'employer' deduct income tax from the remuneration it pays to the worker? | No | Yes |
| Does the 'employer' remunerate the worker by periodic wage or salary or by reference to completion tasks? | No | Yes |
| Does the 'employer' provide the worker with paid holidays or sick leave? | No | Yes |
| Does the work involve a profession, trade or distinct calling on the part of the person engaged? | Yes | No |
| Does the worker create goodwill or saleable assets in the course of his or her work? | Yes | No |
| Does the worker spend a significant portion of his remuneration on business expenses? | Yes | No |
• Is the worker running his or her own business or enterprise with independence in the conduct of his or her operations?
Superannuation Guarantee contributions
Even if the worker is a contractor, legislation may require that the principal make Superannuation Guarantee contributions on behalf of the worker. If the contract between the principal and the worker is wholly or principally for his or her labour then Superannuation Guarantee obligations will arise. Labour includes mental and artistic effort.
The ATO has clarified this with Superannuation Guarantee Ruling SGR 2005/1, which provides that Superannuation Guarantee obligations may also arise for the following workers depending on their relationship with the person to whom they provide their services:
• a person who is paid to perform or present, or to participate in the performance or presentation of, any music, play, dance, entertainment, sport, display or promotional activity or any similar activity involving the exercise of intellectual, artistic, musical, physical or other personal skills;
• a person who is paid to perform services in, or in connection with, the making of any film, tape or disc or of any television or radio broadcast.
Workers’ compensation legislation
Again, even if the worker is a contractor, legislation may require that the principal ensure that the worker is covered by a workers’ compensation policy.
The question of whether a principal will be obliged to extend a workers’ compensation policy to a contractor is complex and rests upon whether the contractor is defined as a “worker” under the legislation.
For the purposes of the legislation, there are two main aspects to the definition of “worker”:
• the primary definition covers workers employed under a contract of service (clearly an employer/employee relationship); and
• the extended definition includes independent contractors who are engaged under a contract for service where they get paid for “in substance” personal manual labour or services.
The legislation also has provisions deeming persons executing work for another person under an avoidance arrangement as workers.
In addition, a principal is deemed to be the employer of employees of its contractors (for the purposes of workers compensation insurance), where the work in which the worker is employed is performed on premises under the control or management of the principal and is directly a part or process in the trade or business of the principal.
Further information
WorkCover WA: Infoline: 1300 794 744; www.workcover.wa.gov.au
Superannuation Guarantee Hotline tel: 13 1020; the Insurance or the Superannuation Commission Hotline tel: 13 1060; or the Australian Tax Office www.ato.gov.au; SuperChoice website www.superchoice.gov.au.