Ever since the introduction of the Australian Business Number (ABN), the issue of Contractors (or Sole Traders) versus Employees has been a constant topic of conversation – and with good reason. In situations where an individual can successfully argue that they are a contractor rather than an employee the following benefits become available:
As you can imagine, this has resulted in a flood of would-be contractors joining the workforce looking to use their ABN as a means of circumventing the normal employer/employee obligations and take advantage of these benefits.
Determining if you are an employee or a contractor comes down to a review the arrangement under which the work is to be conducted. Just because you are a contractor under one agreement does not automatically make you a contractor in all client arrangements.
The following factors should be considered when deciding how to classify yourself as either a Contractor or an Employee:
|Can you sub-contract or delegate the work?||A specific person must undertake the work.||Worker has the right to pay another person to do the work rather than doing it themselves.|
|Do you have control of the work?||What work is performed, where the work is done, when the work is done and how the work is carried out is controlled by the client.||Work is performed at the discretion of contractor. Existence of a deadline or other conditions in a contract does not automatically exclude classification as a contractor|
|When are the payments made?||Regular payments based on hours worked.||Invoiced on completion of the work or completion of specified stages.|
|Who supplies the tools and equipment necessary to perform the work?||Items required are provided by the client.||Owns most or all of the tools and equipment required to complete the job.|
|Who ultimately holds the risk relating to the work?||The client bears all the risk and is liable for rectifying any defect in the work performed by worker.||Contractor bears the risk and are liable for rectifying any defect in the work performed at their own expense.|
|Is the individual independent from the client?||Typically only has one source of employment and has no immediate plans to take on another project.||Has a website and other marketing tools, openly advertises for new clients and has other contracts in place.|
Businesses which incorrectly classify employees as contractors can face some (if not all) of the following:
Businesses looking for further advise in relation to using contractors rather than employees to fill roles within their organisation should contact Inspire CA for assistance.
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