Misclassifying a worker as an independent contractor creates the risk of your business inadvertently committing wage theft and becoming liable for back payment of employee entitlements. Not to mention opening you up for unfair dismissal and sham contracting claims.
The distinction between employees and independent contractors has long been murky, and for years has relied on complex analysis of the “multifactorial indicia” present in the relationship between the parties. This requirement has often led to confusion and conflicting opinions about whether a worker is a contractor or an employee, and uncertainty about whether businesses and workers could rely on what they had written and agreed upon in their contracts.
Traditionally, the courts have approached this question by looking beyond the terms of the contract to consider the work relationship. Two recent High Court decisions now provide increased certainty in relation to engaging workers as contractors, which in turn may also increase business confidence to engage independent contractors instead of employing employees.
The decisions clarified that if a contract between the parties sets down the terms of a contractor relationship, then legally that is what the relationship is. Unless there is a suggestion that the contract is a sham, unlawful or is completely inconsistent with the conduct of the parties, the terms of the contract define the relationship.
This does not mean that simply writing in the contract that the worker is a “contractor” is enough though. It’s essential to ensure that the relationship is a genuine contractor relationship, that the contract is well drafted and aligns with the “multifactorial indicia” traditionally used to identify whether a relationship is that of a contractor or an employee. These factors include the ability of the worker to subcontract/delegate, the basis of payment, provision of equipment tools and assets, commercial risks, control over work and whether the worker is conducting their own independent business.
With a well-drafted contract between the parties, businesses will have a higher level of certainty that the workers they engaged as independent contractors cannot later claim that they are entitled to employment-related payments, such as minimum hourly rates and leave.
(It’s important to note that in some circumstances independent contractors are entitled to superannuation – so make sure you have this one covered too!) We can give you advice and when and when not to pay super to your contractors. Believe us you don’t want to get this one wrong.
To ensure your agreements are up to scratch, make sure you are clear about the nature of your employment relationships and have a strong written agreement in place for your employees and contractors, that set out the rights and obligations of the parties. Remember to regularly review your existing contracts to make sure they offer you full protection, and you are meeting all your legal obligations.
We have recently made a number of updates to our contractor agreements, so we highly recommend that you update yours in light of new case law.
We are offering our existing clients a special offer at the moment, for all of you on a Retainer you get access to the new template for free, for everyone else we are offering the template at a discounted rate but only for this week. So if you need help implementing or updating your Employment or Independent Contractor Agreements, then check out our offer here.
Senior HR Guru and Investigation Lead