The common law meaning of an ‘employee’ has been developed via a number of Court decisions over a number of years. Based on these decisions, the following table summarises the key factors that must be considered when looking to determine whether a worker is an employee or an independent contractor.
Importantly, all factors need to be weighed up before making a conclusion, although some factors (e.g., ‘control’ and, particularly more recently, the worker’s ‘integration in the payer’s business’) are weighted more heavily than others.
- Control
An employer generally has the right to direct the way in which an employee performs their work.
In particular, an employer will control: what work the employee does; where the work is done; how the employee carries out the work; and when the employee must complete the work (e.g., by setting working hours).
An independent contractor can decide the way the work is done. This will generally be the case where the worker is free to exercise their discretion in completing the work (subject to the terms and conditions in any contract or agreement). While a payer has the right to specify how the contracted services are to be performed by the contractor, such control is generally specified in the terms and conditions of the contract or agreement.
- Integration in payer’s business
An employee works in their employer’s business and is financially dependent on that business. Other indicators of a worker working ‘in’ the payer’s business include: wearing a uniform with the payer’s logo or badge; training is provided to the worker by the payer; and any reasonable duties asked of the worker must be performed. The work performed by an employee builds up the business goodwill of their employer.
An independent contractor is operating their own business independently of the payer’s business. The contractor performs services as specified in their contract or agreement and is free to accept or refuse additional work. The work performed by an independent contractor builds up their own business goodwill.
- Risk
An employee takes no commercial risks. Rather, the employer’s business is legally responsible for the work done by an employee and is liable for the cost of rectifying any defect in the work..
An independent contractor takes on the commercial risks, including being responsible for: the legal risk for the work; defects in the work performed by the contractor; and rectifying any defect or paying to have the defect rectified.
- Payment
An employee is generally paid either: a set amount such as an award rate, annual salary or an hourly or weekly rate; for the time worked (e.g., a per hour rate); a ‘piecemeal rate’, being a price per item or activity (e.g., a telemarketer may be paid a specific amount per successful sale they make); or a commission.
An independent contractor is paid for a result, which is often based on a quote they provided. While a quote can be calculated using hourly rates or price per item to work out the total cost of the work, a contractor is not paid until the agreed result is achieved.
- Equipment, tools & other assets
Generally, employees are either: provided with all (or most) of the equipment, tools and other assets required to do the work; or provided with an allowance or reimbursement for the cost of the equipment, tools and other assets provided by the employee.
An independent contractor is responsible for providing all (or most) of the equipment, tools and other assets required to do the work. Independent contractors do not receive an allowance or reimbursement for the cost of the equipment, tools and other assets.
- Expenses
An employee is generally provided with an allowance or reimbursed for expenses incurred whilst employed.
Generally, an independent contractor incurs their own costs in relation to performing contracted services.
- Delegation
An employee is contracted to personally perform the work.
An independent contractor is contracted to provide a particular result (i.e., the completion of a job). Accordingly, an independent contractor is generally able to delegate/subcontract work to their own employees or subcontractors.
- Appointment
An employee is generally recruited directly by an employer (e.g., through a job advertisement), or indirectly through a recruitment agency.
An independent contractor is likely to advertise their services to the public at large.
- Termination
Subject to State and Federal employment laws, an employer reserves the right to dismiss an employee.
An independent contractor is contracted to complete a set task. Subject to the conditions of the contract, the payer may not be able to terminate the contract, without penalty, unless the contractor has not fulfilled the conditions of the contract. The contract often contains terms dealing with defaults made by either party.