Employees vs Contractors - Understand the difference!

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Do you know the key differences between an Employee and independent Contractor?

From 26 August 2024 a new definition of employment has been added to the Fair Work Act, to assist businesses and individuals in clarifying if someone is considered an employee or a contractor.

Let's break down what's involved!

Step 1:

Originally, the difference between an employee and contractor could be showcased through the 6 key factors (see below for a breakdown), however effect 26 August 2024, the changes to the definition of employment means we need to consider the following first:

1. The real substance, practical reality and true nature of the working relationship

2. The parts of the working relationship, such as the terms of the contract and how the contract is performed in practice

By applying the new definition of employment this may characterise working relationships differently and lead to different rights and obligations for those affected.

Step 2:

From here the key factors of employment or contracting relationships needs to be considered by applying the 'whole of relationship test'.

Businesses under the Federal system: The Whole of relationship test - click here
Business under the State system: The Start of relationship test - click here

A worker who earns more than the contractor high income threshold (From 1 July 2024 this equals $175,000) can opt out of using the whole relationship test and apply the start of relationship test instead.

The 6 Key Factors to consider:

The level of control over how work is performed
Who supplies the tools and equipment
Financial responsibility and risk
Hours of work
Expectation around continuous work
Ability to delegate or subcontract work

Let's compare!

Sham Contracting

A sham contracting arrangement can occur when a business or individual tells or represents to a worker that they are an independent contractor, when they are in fact an employee of the business.

It is also illegal to:

Dismiss or threaten to dismiss an employee to engage them as an independent contractor to do the same work; or
Knowingly say something false to convince an employee to become an independent contractor to do the same work.

Penalties for sham contracting can be up to $18,780 for individuals, $93,900 for business with less than 15 employees and $469,500 for businesses with more than 15 employees.

If you have any questions regarding the information above, please feel free to reach out to the Employii team via [email protected] or give us a call on 0401 510 559.

Author: Jess Roughsedge (HR Officer)

Employees vs Contractors - Understand the difference!

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