Employee vs contractor: put a solid contract in place!

Tuesday April 5, 2022

A recent ruling in the High Court of Australia has called into question the difference between an employee and a contractor.

In the recent case of ZG Operations & Jamsek and CFMMEU v Personnel Contracting, the High Court considered the written contract as paramount in determining whether an individual is an employee or contractor. The High Court decisively and unanimously held that the written terms of the agreement between the parties is the primary factor when determining whether a worker is an employee or contractor.

The case concerned two truck drivers who began working as employees for a company in 1977. Nine years later, they entered into agreements as independent contractors and were required to buy their own trucks to carry supplies. When their contracts were terminated in 2017, the drivers took the company to court, claiming they were owed superannuation and leave entitlements. The High Court found the workers were independent contractors.

This decision demonstrates the importance of having a clear written contract in place for both employees and contractors, which specifies whether the worker is conducting their own independent business or if they are serving in the business of the employer. This is the crucial difference between an employee and a contractor.

To ensure you are legally covered, employers should:

  • Ensure the arrangement is articulated in writing, with a contract that sets out the rights and obligations of the parties.
  • Review existing contractor arrangements and contracts.

Contractors versus employees: a checklist

Working Hours

Employees usually have regular and defined working hours. On the other hand, contractors usually choose which hours they work.

Risk

Employees face no commercial or financial risk over their work. Contractors take risks and are responsible for any liability or defects.

Expectation of Work

Employees can expect regular and systematic work, unlike contactors.

Payment

Employees receive routine payment. Contractors paid for quoted and completed work.

Equipment and Tools

Contractors are responsible for supplying their own equipment and tools to complete the work.

Superannuation

Employees are entitled to superannuation payments from their employer.

Tax

Most employees have their tax deducted by their employer.

Leave Entitlements

Employees are entitled to annual leave, sick leave or carer’s leave. Contractors receive no leave benefits.

As an employer, it’s important to have a written contract that clearly and appropriately reflects the true nature of the relationship between the employer and employee. A written agreement is your very best protection. If you’d like help drafting contracts, get in touch with the HR Dept.

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