I often receive calls from business owners who are confused in relation to the laws surrounding the utilization of a person the business owner sees as an independent contractor. Generally, the call relates to whether there is any award coverage, however, even if the person is happy to submit an invoice and get paid weekly or monthly for the hours they work a business is treading on shaky ground unless they are fully aware of the ramifications. If you are in this situation, read on.

26 March 2026

Are you engaging an employee or independent contractor?

 

I often receive calls from business owners who are confused in relation to the laws surrounding the utilization of a person the business owner sees as an independent contractor. Generally, the call relates to whether there is any award coverage, however, even if the person is happy to submit an invoice and get paid weekly or monthly for the hours they work a business is treading on shaky ground unless they are fully aware of the ramifications. If you are in this situation, read on.

 

Engaging a worker as an independent contractor rather than an employee carries legal risk for an employer if the arrangement is later found to be a contract of service (employee) rather than a contract for services (contractor). If the relationship is misclassified, the employer may become liable for unpaid entitlements such as wages under an award, overtime, superannuation, leave, and taxation obligations. Civil penalties may also apply for sham contracting under the Fair Work Act 2009.

 

If a complaint is made to the Fair Work Ombudsman, the Ombudsman may investigate by requesting records, interviewing the parties, and examining the practical reality of the relationship, including control, integration and the ability to delegate work. Where breaches are identified, the Ombudsman may require back-payments, issue compliance notices or commence court proceedings.

 

It is not unusual that after a contract for service (contractor) relationship has commenced and continues for some time the contractor becomes aware that they are not being provided with the benefits that people employed on a contract of service are (employee).  These benefits flow from the National Employment Standards, awards or enterprise agreement and other federal and state legislation, superannuation and long service leave respectfully.

 

If the matter cannot be resolved between the parties, it may progress to the court system.  Courts do not rely on a single factor to determine whether a person is classed as an employee. Instead, they look at the totality of the relationship between the parties, which at times can be very complex.

 

Following are five factors that are commonly considered. 

 

Degree of control - If the employer has the right to control how, when and where the work is done, the relationship is more likely to be an employer/employee relationship.  Contractors generally control how the work is performed and other than general agreement to such work and time an employer does not have this authority.

 

Provision of tools and equipment - Employees usually use tools provided by the employer where Contractors typically provide their own equipment and resources.  This is not a clearly defined criteria as an employer may supply some (large) tools to a contractor, but the relationship would still be employer/contractors.  So it is the nature and amount of tools provided.

 

Ability to delegate or subcontract - Employees generally cannot delegate their work without permission where contractors often have the right to subcontract or delegate the work.  Variations of the above would be where a written contract for service stipulates the name or the position of a person who must provide the service.

 

Method of payment - Employees are often paid wages or salary at regular intervals, contractors are usually paid for a result or by invoice.

 

Risk and responsibility - Employees bear little financial risk where contractors often bear commercial risk and may make a profit or loss. Contractors can also be sued and be required to make good any unacceptable work.

 

For the business owner or manager, prior to engaging a contractor it may prove beneficial to review the engagement against the five criteria stated above. If after doing so, you still have questions please contact me on 0428 112 009.