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TIPS
O
ne would have hoped that
after all the test cases, court
judgments and definitions set out
by Parliament in statute, there would
be a simple answer as to whether a
person is an employee or an independent
contractor.
The debate over ‘sham contracting’
and whether a person is, in reality, an
independent contractor or an employee
has continued to receive legal and political
attention. This can cause confusion for
working people and often results in
errors which can have financial and legal
consequences.
Personnel engaged by a company
can be put at a disadvantage by being
described as independent contractors
as this enables the company to avoid
paying employee entitlements such as
sick leave, annual leave, superannuation
and workers’ compensation insurance.
Additionally, employee numbers and
employment opportunities are lost
when a company engages independent
contractors in place of employees.
Some companies mistakenly believe
that with one or two small steps they can
avoid many employment obligations.
To counter this misconception, the
Australian Tax Office (ATO) has issued
on its website a series of tests to be
considered when differentiating between
the two types of engagement.
Included in its advice is a list of
common myths which the ATO believes
have led people to form the view that
any one of the steps is sufficient to make
a person a contractor. That includes,
for example: a contract between the
parties asserting that it is an independent
contractor relationship; or that the
person doing the work has an ABN; or a
registered business name; or is engaged
only in short-term work or extra work for
busy periods (the last could also be an
example of a casual employee).
The matter is further complicated by
the fact that various statutes (such as
tax) often deem parties to be employees
for the purposes of imposing statutory
obligations, or impose these obligations
on personnel whether they are employees
or independent contractors, such as
superannuation, thereby blurring the
lines further.
COMMON LAW TEST
There are a number of recent leading
case law authorities one can look to for
guidance in assessing a relationship. It
is unfortunate that in each of the cases,
the facts or criteria which appear to point
to one form of relationship or the other
are often given different weight within the
different cases by different judges, which
could lead to a conclusion other than what
might be anticipated.
There is a criticism that this may be
because a court instinctively forms a
view of the nature of the relationship and
then simply arranges its interpretation
on all the different facts to support that
conclusion. This is not helpful to the
working person trying to decide if theirs
is an employment or independent
contractor relationship.
Courts over the years have tried to
express or create a simple overriding
test or question to be answered when
undertaking the analysis of a relationship.
Some examples are:
ǩ
The ‘control’ test: can the company tell
the other party not only what to do but
how to do it?
ǩ
The ‘four corners’ test: can the other
party be said to be within the boundary
of the company’s operation?
ǩ
The ‘organisation’ test (closely allied to
the four corner’s test):is the other party
really a part of the organisation?
However, a leading court has cast
doubt on the validity of such attempts
and indicated that they are simply one
part of all the matters a court has to take
into account when coming to its decision
INDEPENDENT CONTRACTOR
OR EMPLOYEE?
The debate over how to
differentiate between an
independent contractor and
an employee has raged long
and hard. Gadens partner,
Ian
Dixon
takes a closer look at
the issue and outlines some
common misconceptions.