Fitness Australia helps you decipher the differences and benefits of using contractors versus employees in your business.
Let’s define the difference.
There are lots of benefits for a business to engage independent contractors to perform certain work, as opposed to hiring an employee. However, the two types of engagement are very different, and should not be considered interchangeable.
Defining independent contractors and employees.
Employee: An employee is someone employed by an employer to perform a role within the employer’s business or operation. Employers pay and provide a range of entitlements to employees in addition to their wage as required by law.
Contractor: In contrast, contractors are effectively self-employed. They generally have their own business and operate under their own ABN. Contractors don’t have the same entitlements as employees like paid leave, and they are responsible for paying their own tax and superannuation.
Determining whether a worker is an independent contractor or an employee.
Whether a worker is an independent contractor or an employee will not solely be determined by what has been agreed between the two parties. This means, even if there is a contract stating a worker is an independent contractor, they may actually be an employee due to the nature and conditions of their work with the business.
The following factors should be considered when trying to determine whether someone is, in fact, an independent contractor or an employee:
- How are the hours of work determined, set and managed?
- Does the worker have an ABN or do they operate as a Pty Ltd Company?
- What level of control does the employer / Company has over the worker?
- Who pays for any licensing or registrations that the worker may need?
- Does the worker choose when they work or is the Company obligated to provide work to them?
- How the worker is paid for their time working for the Company?
- Is the worker required to wear a Company uniform?
- Does the worker supply their own materials to perform their work?
The importance of getting it right.
As indicated above, there are a variety of entitlements that employers are not obligated to pay to independent contractors, but that are required to be paid to employees.
If a worker has been paid as an independent contractor but are later deemed to actually be an employee, the impact may involve large underpayments, which employers are obliged to correct.
To add to this, engaging someone as an independent contractor when they are actually an employee, may also constitute “sham contracting”. This is expressly prohibited by the Fair Work Act, and may result in substantial financial penalties of up to $54,000.
Defining whether a worker is an independent contractor or an employee is not always a straightforward task. So whether you’re a registered instructor or trainer, a registered business, or a sole trader just starting out you can get free advice, templates and fact sheets from Fitness Australia’s HR Advisory Service.
To access this service simply log into your dashboard at fitness.org.au or call 1300 211 311.
Article written by Fitness Australia for the What’s New in Fitness Magazine, Summer 2015 Edition.