Independent Contractor or Employee?

Q. I have a number of cleaners who are employees and I need to hire some more in the same team. I am thinking of hiring a new one as an independent contractor with an ABN so that I can save on paying award rates and superannuation. Do I need to consider if they are a contractor or employee?

A: Unless you would like to run the risk of hefty company and personal fines, your suggested approach is not recommended. In fact, based on the information provided, this situation is more than likely unlawful and these workers would be protected by the Sham Arrangements section of the Fair Work Act 2009.

Sham contracting is where an employer tries to disguise an employment relationship as an independent contractor arrangement, where the worker is really an employee. The intention may be to avoid the responsibility of paying employee entitlements.

The standard tests used to determine the employment relationship range from who has the control over the work performed to who pays the worker’s insurances but no single factor will determine the relationship. This is a very complex space and the court decisions are always based on the true nature of the employment relationship as opposed to any discussions between the parties. Therefore, it is always recommended to err on the side of caution when engaging independent contractor or employee.

The case law for sham contracting famously states, the parties “cannot create something which has every feature of a rooster, but call it a duck and insist that everybody else recognise it as a duck”.

If you would like assistance with understanding your obligations in relation to employee versus contractor arrangements, call Industryus HR on 07 5655 4047 or click here to arrange a Free Introductory Call. The Fair Work Ombudsman regularly investigates worker engagement so it pays to get it right the first time.

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