A contracting relationship is a legal relationship. If you perform work or provide a service for another person or business under a verbal or written contract, the law may consider you to be an independent contractor, or it may consider you to be an employee. The distinction is an important one and is dependent on all of the features of the relationship. Just because the person you are performing work for refers to you as an independent contractor, does not mean that this is your legal status.
An independent contractor is not an employee
If you genuinely provide services for payment as an independent contractor, you are not an employee and the hirer is not an employer.
Know your status
It is sometimes difficult to work out whether you are an independent contractor or an employee, especially if you provide services only to one hirer. Cleaners and IT professionals, for example, may fall into either category depending on the circumstances of their engagement (including the terms of their contract).
The difference is important because different laws and mutual obligations apply to each type of relationship. You could easily be an independent contractor for one job and an employee for the next. This is often the case in the building and construction industry. It is important to understand that an independent contractor is subject to different tax, insurance and superannuation requirements.
What are the key elements of each type of relationship?
An employee:
• is usually supervised by an employer
• is usually required to carry out their work in a particular way, and comply with directions to perform work differently from time to time
• may be required to work only for one employer
• is entitled to paid holidays and sick leave
• is often required to represent to the public that they work for the employer (for example, by business cards, uniforms etc)
• generally cannot subcontract tasks given to him or her. A typical employee earns a fixed wage or salary and works in the business operated by the employer on a permanent, fixed term or casual basis. An employee’s employer usually controls how their work is performed.
An independent contractor:
• has established his or her own business
• is usually paid to achieve an agreed result
• usually provides skilled services
• generally controls how those services are provided
• may be free to subcontract the work to others
• is free to refuse additional work
• often supplies the material or special tools to complete the job
• usually bears the risk and cost of fixing their faulty work
• can advertise to the general public
• usually has no right to employee entitlements such as paid leave.
For example, an independent contractor might be hired to perform a specific job or series of jobs and often provides specialist skills and materials.
If you have any further questions please don’t hesitate to contact us.
