CONTRACTOR OR EMPLOYEE – LEGAL UPDATE

Yasmine Healy, Head of Legal Services, ClinLegal

This Legal Update explains changes to the law for practices engaging contractors, and what you can do to minimize risk of your contractor actually being an employee.

In August 2024 the definition of a contractor changed under Fair Work. For a period prior to this time, an Associate was classified as either a contractor or employee based on what the parties agreed when the relationship started. Generally speaking, this meant the words in the written contract were the strongest evidence of the relationship, so that if the contract described the Associate as a contractor, then the Associate was a contractor, regardless of any practical or operational changes or inconsistencies. This assessment is known as the “Start of Relationship Test” and was favoured by employers due to its certainty and reduced administrative management required for any changes.

From August 2024, Fair Work reverted to a multifactorial approach to determine the relationship classification, known as the “Whole of Relationship Test”. This test takes into account the entirety of the relationship between the parties as well as “real substance, practical reality and true nature of the relationship”. This means that the terms agreed to contractually as well as how the role is carried out in practice are all factors used to classify the relationship, not just the terms of the contract. Where an Associate is described in an agreement to be a contractor, but for example, lacks autonomy in treatment decisions and in how work is done, does not have freedom to select materials and equipment, cannot choose when to work and does not work for anyone else, the Associate is more likely to be classified as an employee and entitled to protections such as from unfair dismissal as well as pay (or backpay) for personal, annual leave, public holidays, notice of termination, to name a few. This can be especially risky for employers because where there is no casual employment contract in place (which will be the case for all contractors) and the Associate works regular hours, the Associate will likely be regarded as a permanent employee attaching further entitlements.

There is however one exception to the new test. A contractor is permitted to “opt out” of the whole relationship test if he/she earns over the high

(Continued on page 12) income threshold (currently $175 000 annually and expected to increase from 1 July 2025), by providing written notice to the employer. This results in the parties reverting to the Start of Relationship Test to define the relationship, from the date the notice is given, and generally provides more certainty and limits risk for employers. The opt out notice must include a statement of the Associate’s earnings as to ensure that it is above the income threshold. The opt out notice may be revoked by the worker at any point in time after filing by providing a revocation or written notice to the employer, after which the “Whole Relationship Test” becomes applicable to the worker from the date the notice is given. In each working relationship between a contractor and the employer, the contractor may only give one revocation notice for that role.

In other words, if you have Associates who are earning over $175 000 a year then you should consider requesting them to opt out of the new test. In any case, it will be important to ensure a written contract is in place, that correctly describes the Associate as a contractor.

For further advice on how to minimize the risk of Associates being incorrectly categorized, or for assist in drafting an opt out request or notice, please feel free to contact us info@clinlegal.com au. Members of ClinLegal will shortly have access to the opt out notice through the member portal at no additional fee.

This article is produced by a third party (not the ASO) for guidance purpose only. Legal advice should be sought for your individual circumstances. For tailored advice for your Practice, please email: info@clinlegal.com.au