Correctly determining whether a particular worker is an employee or a subcontractor is essential.
The legal rights of individual entities and obligations of employers or contractors, which apply to independent or subcontractors are quite different to those for employees.
A subcontracting arrangement is a business to business relationship, with “workers” providing a service which includes the provision of labour, tools and expertise. An employer employee relationship is that of “Master & Servant” with a clear job description, set hours and instructions, provision of tools of trade often covered by an industrial award enterprise agreement or employment contract.
It is very important that all workers are correctly classified as either employees or contractors to avoid potential union disputes, industrial action and Tax office claims for unpaid superannuation.
The law treats employees and sub contractors differently. For example, taxation, rates of pay, superannuation and workers’ compensation may be quite different dependent on whether workers are employees or subcontractors. All employers must know how the law distinguishes the two and in what context.
Getting it right is important
Employers need expert advice as there is no single definition of subcontractor that will apply in every case. The various pieces of employment related legislation, for instance legislation covering workers’ compensation, occupational safety and health, taxation and superannuation, may contain different definitions of “employee” or “worker” which can be specific to that legislation. This analysis gives some guidance on the common areas of concern by businesses in the context of labour relations.
It is important that employers or workers treat each case on its own merits & do not rely on what others are doing as being correct, and rather determine for themselves if workers are employees or subcontractors. Some industries such as transport and construction rely heavily on contract labour but often these so-called “independent contractors” are often found to be employees.
How to tell the difference?
The differences between employees and contractors may be summarised as follows::
employees are under the direction and control of the employer (that is the classic master servant relationship), while subcontractors generally have the right to control how the work is done and who performs the work.
employees usually work for one employer on an ongoing basis while subcontractors usually only work for the duration of a particular job or on a project with a finite timeframe.
employees are usually required to do the work themselves while subcontractors can usually choose who does the work and delegate the work to others.
the bulk of an employment contract relates to the supply of labour and occasionally items such as tools or vehicles, while subcontractors often supply a significant amount of capital as part of their contract.
employees are usually paid by the hour, while subcontractors generally get paid to complete a particular job. Contractors quote and sometimes negotiate the price they will charge.
This is a complex area of employment. Anyone who has doubts about any particular situation should seek professional advice.
For taxation advice for businesses, contact our office on 02 9526 7807.