EMPLOYEE OR INDEPENDENT CONTRACTOR DO YOU KNOW THE DIFFERENCE? Sophie McDonald*
Limit your risk as a franchisor, franchisee or small business owner when it comes to classifying your workers correctly. Read on for tips from Sophie McDonald of HR Central on how to tell the difference between employees and independent contractors.
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t is essential to classify your workers appropriately as either an employee or contractor, as incorrect classification can result in legal and financial consequences, including denying a worker their benefits, as well as potential breaches of workplace, taxation, superannuation and workers compensation law. It is more important now than ever since the recent passing of the government’s new laws under the Fair Work Amendment (Protecting Vulnerable Workers) Bill 2017. This amendment holds franchisors liable for workplace violations by franchisees. The reason that the classification of work relationships is not as black and white as once thought comes from the way the employment relationship is determined. It is important to note that just because you define a relationship as a contractor through an agreement, that doesn’t necessarily make it so. We have to look at the relationship as a whole to consider both the agreement and the work practices performed in the relationship.
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When looking at the practices performed, we would consider a number of indicators to determine whether, in total, the relationship seems to be a contract for services (independent contractor) or a contract of service (employee).
How to classify the relationship An employee is an individual engaged on a permanent, fixed-term or casual basis who performs a specific role on an ongoing basis. The practicalities of employment are covered by the employer, including payment of superannuation, payroll tax, personal leave and annual leave. An independent contractor or contractor is generally a selfemployed individual/firm who undertakes a contract with a business to provide services or labour at an agreed price and within a predetermined time frame. Most contractors are engaged on a project basis or engaged to complete a specific task. They don’t work for
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