When are contractors counted as employees?

Articles > Employment

When are contractors counted as employees?

October 11, 2020         Kristine Tran

Contractors will be considered employees of a company if they perform for consistent hours, have little control over their work and are an important part of the business. Generally, the most distinctive features of a contractor is that contractors work for themselves and have the freedom to control their own processes, tools and methods to complete the work. On the other hand, employees work in someone else’s business and the employer controls how and when they work, paying them with a wage. 

Classification of a contractor or an employee

Whether you classify as an employee or a contractor, largely depends on the nature of the working arrangements and not the label given to the worker. When differentiating between contractors and employees, you must look at various factors such as: 

  • Degree of control 
  • Flexibility of work hours
  • Work expectations 
  • Tools and equipment 
  • Risk

Contractors vs Employees 

Generally, you will classify as an independent contractor if you have a high level of control over the work to be performed, and you work flexible hours when completing a certain project or task. Most importantly, you bear the financial risk for your company and pay for your own resources to run a company. 

As such, if you have no superannuation entitlements or paid leave, you can be classified as a contractor. Other factors that determine your status as a contractor include having to pay your own taxes and GST to the ATO, and obtaining an Australian Business Number, and provide yourself with an invoice for work completed.

However, depending on the nature of work, a contractor may classify as an employee if they have one or more of the following factors:

  • No degree of control over your work 
  • To work standard or set hours
  • Obligations to work for a specific period (depends on contract) 
  • No responsibility for financial risk of the company 
  • Superannuation entitlements 
  • Resources given to you by the company 
  • Income tax deducted by employers
  • Regular payments (weekly/fortnightly/monthly)
  • Entitlements to paid leave (depends if you are a casual employee)

Key takeaways

  • Depending on the nature of work being performed,a contractor can be classified as an employee. 
  • Where there is less control of the work, it is more likely that the contractor is an employee. 
  • However, control is only one aspect of the relationship. The courts will examine the ‘totality of the relationship’ to determine whether a worker is an employee or contractor. 

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About Kristine Tran

Kristine is a legal intern at OpenLegal. She is a fifth year UTS law student nearing the final stages of her law degree. She has previously worked for a boutique law firm and volunteered as a paralegal with the Refugee Advice and Casework Services (RACS).