Contractors & employees

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The main differences between contractors and employees
Can classes of contractors be deemed to be employees?
Unfair Contracts
Independent contractors
Independent contractors and their responsibilities

The main differences between contractors and employees

The question of what constitutes an independent contractor as distinct from an employee has been the subject of various Court decisions over the years. Each case is considered on its merits and the Courts have established a number of common law tests to determine whether an employee / employer relationship exists as opposed to an independent contractual relationship.

Such tests include but are not limited to:

legal intention to be engaged as a contractor;
absence of right of control/direction over performance of work;
contractor not subject to precise hours of work;
contractor often provides materials;
contractor responsible for own tax, Workcover;
contractor generally paid by results or completion of job - not time based;
contractor has right to employ staff and delegate work;
contractor takes responsibility for risks eg loss;
contractor operates as an independent business entity.

These tests should not be taken in isolation. The contract needs to be viewed as a whole.

Can classes of contractors be deemed to be employees?

A full bench of the Queensland Industrial Relations Commission (QIRC) may declare a group of contractors in an industry to be employees if it is appropriate to do so. In making such an order the QIRC takes into consideration matters such as:

the relative bargaining power and economic dependency on the contract by the group of workers; and
whether the contract is designed to, or does avoid the provisions of an industrial instrument.

The Commonwealth Government on 22 June 2006 introduced in the House of Representatives, the Independent Contractors legislation which will impact on the powers of the QIRC.

An overview of the legislation including its impact on State law is covered on the Australian Government website .

This site also covers frequently asked questions about this legislation.

Unfair contracts

An unfair contract means a contract that:

is harsh, unconscionable or unfair, or
is against the public interest, or
provides a total remuneration less than that which a person performing the work as an employee would receive under an award, agreement or the Industrial Relations Act 1999 (PDF, 1.9mB), or
is designed to, or does, avoid the provisions of an award, agreement or the Act.

Independent contractors

Generally, an independent contractor is any person who:

enters into a contract for service (opposed to a contract of service),
has their own business, and
uses their own equipment to complete work for an all-inclusive price.

The Courts have established a number of common law tests to determine whether an employer/employee relationship exists as opposed to an independent contractual relationship. Therefore, each case is to be considered on its own merits.

Tests include:

a principal does not have the right of control over performance of work by a contractor;
contractors are not subject to precise hours of work;
contractors usually provide materials and/or equipment in addition to their labour;
contractors are responsible for their own tax, WorkCover, superannuation, etc;
contractors are usually paid by results or on completion of job - not time based (eg. hourly) wage rates;
contractors have a right to employ staff and delegate work;
contractors take responsibility for risks eg. profit/loss;
contractors operate as an independent business entity; and
there is a legal intention to be engaged as contractor.

These tests are not the only ones that may be applied to a particular relationship. A single test should not be viewed as conclusive in proving the type of relationship - the contract needs to be viewed as a whole.

Independent contractor responsibilities

Independent contractors must attend to a range of work related matters which otherwise, if they were employees, would be the responsibility of their employers. These include:

provision for superannuation,
personal injury insurance,
compliance with tax laws, and
liability for damage to the property of third parties.

The Commonwealth Government’s Independent Contractors' Legislation will impact on who is considered to be contractor. Frequently asked questions about this legislation is answered on the Australian Government website .

Last updated: 11 June 2008

Rights & obligations