Contractors vary from employees with a different system of employment regulating their taxation, award conditions, and contracts. Sometimes you may feel you are in a grey area between employment and contracting so here we will explore some common myths surrounding contracting vs employment.
Contractors defined
Legally, when trying to determine if you or someone else is a contractor certain factors need to be considered such as:
• If there is a written agreement between the parties involved
An employee will have a written agreement which highlights that they are an agent for the employer and will be paid for labour under contract. Contractors on the other hand are independent and do not act as an agent for the employer.
• If there is direct supervision or autonomous work
A contractor will be hired to perform a specific task with a result expected at the end of the term. The contractor is responsible for their own skill upkeep and their own work. Employee tasks will be ongoing and training will generally be offered to them on a regular basis.
• If there is evidence of a separate business
Employees will be working for the employer directly, whilst the contractor works for themselves and owns and runs their own business. A contractor invoices the employer for the service provided whilst an employer will get paid automatically and periodically.
Someone can also be an employee even if they have an ABN and someone without an ABN can be a contractor – don’t be caught out by this myth as having an ABN makes no difference.
There is also generally a reason for employing a contractor to perform work for the business. Someone may seek out a contractor because:
• The work they need performed is short term or one-off
• The work might require particular equipment which the business does not have access to
• The work being performed requires a license and specific skills only a contractor can provide
You are definitely NOT a contractor if you:
- Have signed an employment agreement with your employer
- Are an apprentice, trainee, company director, labourer, or trades assistant
Common myths
- Contractors are just for short term – Not necessarily, you might be taken on regularly by the same business over and over again to perform the same task which you invoice for after completion each time. Likewise employees are not just for long term. Many businesses hire casuals for Christmas time, busy periods, or specific projects. The whole working arrangement will help define if you are a contractor or employee.
- Once a contractor, always a contractor – Contactors can also be employees to other businesses as well as be contracted for other businesses at the same time. The point of being a contractor allows them to have the freedom they need to undertake any work they want at any time.
- Specialist skills – Just because you have a specialised skill doesn’t limit you to contracting. You can also be employed for your special skills.
The law
Contractors are protected by the Independent Contractors Act 2006 and the main aims of this Act are to protect the freedom of independent contractors, to recognise contracting as a primarily commercial form of work that is also legitimate and to protect the agreements which contractors engage in.
Sometimes contractors also have access to awards depending on whether they are employed under this, and also by the industry they are working in.
Looking at the whole picture of employment will help you determine if you are an employee or a contractor, most of the time it is more than one factor that determines the definition. If you are unsure if you are a contractor, give Contractor Cover on 1300 GET COVER (1300 428 368) a call today and we can help you find out and determine the best insurance for you.
