What defines a contractor?

The High Court of Australia handed down decisions in two cases regarding the distinction between independent contractors and employees last month. 

The appeals:

  1. Construction, Forestry, Maritime, Mining and Energy Union vs Personnel Contracting Pty Ltd [2022] HCA 1 (Personnel Contracting), and 
  2. ZG Operations Australia Pty Ltd vs Jamsek [2022] HCA 2 (Jamsek) 

In both cases, the High Court held that there was a clear written agreement in place and it was thus appropriate to determine the nature of the relationship between the parties by an examination of the terms of the written agreement. 

These decisions demonstrate the importance for employers to be mindful of the rights and obligations of all parties and make sure these are clearly set out in the written agreement and accurately reflect the intended relationship. 

What defines a contractor?

A contractor is generally someone who works for you on a short-term or irregular basis, usually on a project or as required. 

Contractors are sometimes referred to as freelance workers or consultants. These terms can mean slightly different things, though, and legal definitions may vary from country to country.

The most important thing to remember is that a contractor is not an employee. Contractors are independent businesses working for you, sometimes on your premises.

If you treat contractors as employees you run the risk of creating an employment relationship and becoming liable to provide. So always follow local, legal guidelines to make sure you have a legal-binding contract in place.

Employee vs Contractor

It is important to understand if your new worker is an employee or a contractor. The following Fair Work information sets out the typical differences between an employee and a contractor:

Please note that:

(i) tax, super and other obligations vary depending on whether the worker is an employee or contractor;

(ii) the business needs to keep records to support the decision on whether the worker is an employee or contractor and whether superannuation is payable; and

(iii) the business faces penalties and charges if it incorrectly treats an employee as a contractor and/or does not pay superannuation if required.

Australian Government independent contractor test:

The Australian Government independent contractor test is available here:

Please note that this test is based on the common law tests that determine whether a worker is a contractor. It does not have legal force or effect, but it is an important risk management step to ensure that you do not inadvertently create a sham contractor relationship.

Employee or contractor for tax purposes?

Is the worker an employee or contractor for tax purposes? The ATO’s online tool is available here:

Please keep a copy of each of the test results for your records. 

Need help? Clearpoint Legal team have a great deal of experience in drafting independent contractor agreement to suit your business’ needs. If you do not currently have written contractor agreements in place, or if you need your current agreement reviewed, let our team help.

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