The following is an outline of the various indicators of employment contracts and contracts engaging an independent contractor.
None of these factors can be taken in isolation to determine whether a contract is an employment contract or one between a principal and independent contractor. The relationship between the parties must be examined as a whole.
Also, where the actual conduct of the parties indicates an employment relationship, this is likely to be the case, regardless of what is expressed in the contract. In other words, the parties’ conduct must match the terms of a contract engaging an independent contractor to avoid a finding that an employment relationship exists despite the terms of the contract.
Although the formation of a company through which a contractor provides services is generally seen as an indication against an employment contract, the courts have determined that an employment relationship can exist in such circumstances.
It is important to be aware that different laws still have different definitions of “independent contractors”, including those relating to WorkCover and taxation.
| Relationship Characteristic | Employee (Contract of Service) | Independent Contractor (Contract for Services) |
|---|---|---|
| Risk | Most risk is borne by the employer in relation to workplace injuries and poor work. | Contractor bears all risk responsibility and liability for poor work or injury sustained. |
| Hours of Work | At the direction of the employer – usually set or standard hours of work. | Generally set by the Contractor although it is acceptable for the principal to set parameters within which work is to be performed. |
| Payment | Generally hourly rates or salaries paid at regular intervals. | Payment is on invoice following performance of work under the contract. |
| Leave Entitlements | Generally entitled to sick leave, annual leave, long service leave and other benefits and allowances. | No entitlements or other benefits are payable in respect of leave although it is acceptable for the contract to provide for unpaid periods during which the services may not be performed. |
| Expenses | Employees are usually entitled to be reimbursed for work- related expenses. | Contractor pays own expenses. |
| Period of engagement/expectation of work | Usually employed on an ongoing basis. | Usually engaged for a specific task. |
| Taxation | PAYE tax is paid by the employer on behalf of the employee. | Usually deals with their own income tax. GST is generally payable in respect of the services performed under the contract. |
| Ownership of intellectual property | Employer usually owns intellectual property created and used by employee in the course of their employment. Employee has moral rights. | Contractor usually owns all intellectual property created by them in the performance of the services but may assign it to the principal for value. |
| Ability to accept other work | Full-time employees are usually restricted from working for other employers during normal business hours. | Contractors are free to accept work from any other parties. |
| Delegation | Employees don’t generally have the ability to delegate responsibility unless their position entails such ability. | Can generally delegate all or some of the tasks to other people such as sub- contractors. |
| Performance of Work | Employees work at the direction of the employer. | Contractor has flexibility to as to how the work is to be performed although the contract may specify the method and materials to be used. |
| Authority to command | Employer directs the way in which work is carried out. | Contractor works under his or her own direction to achieve the results under the contract. |
| Scheduling of work | Determined by the employer. | Determined by the contractor in accordance with the terms of the contract. |
| Right to refuse work | No right to refuse. | Contractor agrees the task to be performed beforehand and is free to refuse work not within the scope of the contract. |
| Supply of tools/equipment | Usually provided by the employer. | Usually provided by the contractor. |
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