In this article, we are revisiting the age old question: is your Associate a contractor or an employee? We will discuss why this question matters; examine a recent case which clarifies that invoicing does not in itself avoid employment; and give a brief overview of which factors to look at in determining whether someone is a contractor or employee.
Why does this matter?
Whether a worker is an employee or contractor is important because they have different rights and obligations.
Employees typically have more rights and protections than contractors. For example, employees are entitled to benefits such as leave and notice of termination. Crucially, unlike contractors, they are protected from unfair dismissal laws. Employers also have more obligations in respect of employees than contractors. For example, they are required to withhold PAYG from wages and pay super.
While contractors aren’t entitled to the same benefits, they are entitled to some workplace protections under the Fair Work Act, such as protection from:
- Adverse action (e.g. terminating a contract because they complain to a regulator about their workplace rights)
- Coercion (e.g. threatening to take action against a contractor to coerce them not to exercise their workplace rights)
- Abuses of freedom of association (e.g. being prevented from joining or not joining a trade union or employer group)
If you mistakenly assume that a worker is a contractor rather than an employee, this could leave you vulnerable to unfair dismissal claims or forced to pay employee entitlements such as superannuation.
A recent Fairwork Commission decision found that invoicing was not sufficient proof that a worker was a contractor, rather than an employee. The lesson for Practice owners is that they should be hesitant in assuming that a worker is a contractor simply because they send invoices for ‘services’ which include an ABN. Whether a worker is an employee or a contractor depends on the nature of the relationship, not whether someone is labelled an ‘employee’ or ‘contractor’ or because they issue invoices.
The case, Erin Shay v Christopher Shannon  FWC 2815 (21 May 2021), involved a worker who was working two shifts and sending periodic invoices for payment. There was no contract of employment. The Commission found that, despite the practice of invoicing, the worker was an employee and therefore was protected by unfair dismissal laws.
In coming to this conclusion, the Commission stressed that determining whether a worker is an employee or contractor ‘requires one to look at the relationship the parties have actually brought into existence’. Merely labelling someone a contractor or having an invoicing arrangement is not sufficient.
In this case, the facts suggested that the relationship between the parties was more similar to that of casual employment than a contract for services. Crucial in this determination was the fact that the worker was paid at a flat hourly rate rather than for completing tasks. Also relevant was the worker had to wear a shirt with the employer’s logo and use the employer’s equipment.
As mentioned, whether a worker is an employee or contractor depends on the nature of the relationship between the parties. Determining this involves looking at a range of factors. No one factor is conclusive and each case will be decided on its own facts.
|Factors||More likely to be Employee||More likely to be Contractor|
|Mode of Remuneration||The worker is paid in the form of a salary, wages, or flat hourly rate
The worker does not supply an invoice or quote an ABN
|The worker is paid on the basis of achieving a specified task or result or on the basis of production (e.g. % of income)
The worker supplies an invoice or quotes an ABN
|Control||The Practice for whom the work is performed has the right to direct the manner of performance of the work;
The Practice prescribes the times and locations for the performance of the work
|The worker has a high level of discretion, flexibility and control over the work and their hours|
|Exclusivity and Delegation||The worker has no right to delegate their work to another
Performance of work exclusively for Practice, unless employer consents
|The worker has power to delegate (or sub-contract)
Permitted to work for any other Practice
|Equipment||The Practice provides the equipment and materials for the work;
Use of the worker’s own equipment or materials is compensated by the reimbursement or by an allowance;
|The worker provides their own equipment|
|Taxation||Personal income (PAYG) tax is deducted by the Practice;||The worker pays their own tax and superannuation|
|Workers’ compensation||Practice liable or undertakes to cover the employee for workers’ comp||The worker is responsible for insuring against risk of accident/injury|
If, after reading this article, you are still unsure whether your Associate is a contractor or employee, please feel free to contact ClinLegal at [email protected].
This Circular is produced for guidance purposes only and is not a substitute for legal advice. Legal advice should be sought for individual circumstances. For tailored advice for your Practice, please contact us.