Contractor versus employee

Independent contractors represent an important part of the Australian workforce and are becoming increasing common in many businesses.

There is no standard legal definition that distinguishes between independent contractors and employees. As a result, the distinction between these two types of workers is not always clear cut.

Nevertheless, the distinction has been important in many contexts, including vicarious liability for work performed, taxpayer status and liability for workers’ compensation premiums. In recent times, the distinction has been very critical in disputes over employment entitlements and access to unfair dismissal remedies (which are available to employees, but not independent contractors).

Australian courts and tribunals have used a range of tests and indicators to determine whether a person is an independent contractor or an employee. It is important for employers to be aware of the way in which the tests and indicators have been applied by courts and tribunals on a case-by-case basis.

Employers also need to be aware of the legislation which may apply to independent contractors, such as the Independent Contractors Act 2006. There are potentially serious consequences for employers associated with the use of so-called ‘sham contracting’ or unfair contracting arrangements.