23 Feb Employee or Contractor?
There is lot at stake for an employer who incorrectly identifies a relationship as one between contractors when in fact the relationship is properly defined as one between employer and employee. An improper assessment of the relationship can lead to the financial ruin of a business. The improper assessment may result in a requirement for the unexpected payment of many years of award payments, sick leave, holiday leave, long service entitlements and superannuation. It is essential to get this right.
It is necessary to note at the outset that you cannot agree that a person is a contractor if in fact that person is an employee. An agreement between the parties of this kind is of no effect. The payments due to employees are required by statute and cannot be waived by anyone, not even the employee.
If it looks like a duck and quacks like a duck it is probably a duck. It should be no surprise that the courts don’t place any weight upon the “title” given to a worker. To assess whether a worker is an employee or a contractor the whole of the relationship must be examined.
Since the High Court decision in Hollis V Vabu (2001) 207 CLR 21 the common law distinguishes employees and contractors by considering various indicators under seven headings:
1. The totality of the relationship
2. Whether the worker represents herself in her own business or instead represents the engager.
3. How much control the Engager has over the worker
4. Agreements and Documentary evidence of the relationship including for example:
- ABN registration
- corporate entities
- operational licences and policies
- GST registration
(It should be noted however that there is no one ingredient or group of ingredients that will be the final determiner. The whole of the relationship must be examined.)
5. The terms of the engagement contract. (Ignoring the label put on the agreement.)
6. The various unlimited indicators (indicia) for example:
- control over the manner in which work is performed
- the right to delegate
- business premises
- ownership of equipment
- the existence of other clients/customers
- method of remuneration
- entitlement to holiday and sick leave
- creation of goodwill
- payment method – result or time based
7. Vicarious Liability – is the employer held liable for the actions of the worker.
It should be obvious from this list that there is scope to craft a relationship between the engager and the engagee so that the relationship gives rise to either a relationship of employee and employer or alternatively of independent contractors. The agreement between the parties is the starting point however the agreement itself is not by itself enough the ongoing relationship must also be managed to ensure that it conforms to what one would be expected of parties to a relationship of that kind. By way of example the terms of invoices issued by the contractor should be crafted so that these support the contention that the relationship is between independent contractors.
Riba Business Lawyers