How many times have you asked yourself this question?
Two landmark cases before the High Court really highlight the minefield of identifying whether a worker is an independent contractor or employee for tax and superannuation purposes. Both cases handed down by the High Court late last month clarify the way the courts determine whether a worker is an employee or an independent contractor.
The High Court confirmed that it is necessary to look at the totality of the relationship and use a ‘multifactorial approach’ in determining whether a worker is an employee.
Case in point
In CFMMEU v Personnel Contracting and ZG Operations Australia v Jamse, the court took the approach that if the written contract between the parties was not a sham and not in dispute, then the terms of the agreement could be relied on to determine the relationship. In this case, a labour-hire contractor was determined to be an employee despite the contract stating he was an independent contractor. But why?
The labourer signed an Administrative Services Agreement (ASA) which described him as a “self-employed contractor.” Throughout the course of several months, the labourer was offered work across several Personnel Contracting sites. The question before the court was whether the labourer was an employee.
The High Court held that despite the contract stating the labourer was an independent contractor, under the terms of the contract, the labourer was required to work as directed by the company and its client. In return, he was entitled to be paid for the work he performed. In effect, the contract with the client was a “contract of service rather than a contract for services”, as such the labourer was an employee.
What makes a genuine independent contractor?
A genuine independent contractor who is providing personal services will typically be:
- Autonomous in their decision-making.
- Financially self-reliant rather than economically dependent upon the business of another.
- Chasing profit (that is a return on risk) rather than simply a payment for the time, skill and effort provided.
Double-check your processes
Every business that employs contractors should have a process in place to ensure the correct classification of employment arrangements because even when a worker is a genuine independent contractor it does not always mean that the business won’t have some employment-like obligations to meet.
If you are concerned about your position or need more information, please contact us.
