Employing someone in your business is a contractual relationship between the employer and employee,
should be in writing, is where the employer has significant control of the employee’s duties and
the employee is remunerated under an Award or industrial instrument.
An ‘independent contractor’ contracts his or her labour to your business or an enterprise
for a specific purpose, and is usually paid on outcomes.
There are numerous tests that may indicate as representing a genuine independent contractor however the
most common of these is the ‘Control Test’.
Employee
A person is more likely to be an employee if:
- The person is remunerated by way of salary or wages;
- The person is entitled to annual, sick or long service leave;
- The person is employed for a set purpose and cannot change his or her duties as they please;
- The person is supplied with the equipment and tools to perform their duties;
- The business commercial risk is borne by the employer; and/or
- The employee has the obligation to obey the lawful commands of their employer.
Independent Contractor
A person is more likely to be an independent contractor if:
- They advertise their services to the public at large;
- The person provides their own tools of trade;
- The person sets their own hours of work;
- The person has a high degree of discretion in how the work is to be performed;
- Has delegation powers to appoint another person in their place;
- The contract specifies the outcomes to be delivered;
- The contractor is paid on performance and delivery of outcomes;
- The contractor works and takes all the risk for the profit and loss of the business; and/or
- Does not receive his or her incomes from predominantly one source (80/20 rule - ATO).
What Should I Include in an Independent Contractor Agreement?
If you are entering into an agreement for an independent contractor consider the following clauses:
- The intention of the parties – state that this is a contract relationship of an independent
contractor and not an employee;
- The agreement ought to be spelt out in writing;
- The term of the contract;
- Start and end date – renewal clause;
- Dispute resolution i.e. mediation etc;
- The method of payment: are there milestones, benchmarks, key performance indicators and what the hourly,
quantity amount payable is and when;
- A detailed description of work to be done; and
- Stay away from contractual benefits that may be construed as being employee related.
Further Information
Philip Lye is Director of Biz Momentum Pty Ltd. He works with small to medium businesses to help
them cut through the maze of people matters. Clients get specific actionable strategies to protect their
business interests. For more information on Philip, visit www.biz-momentum.com and
subscribe to his free monthly e-zine.
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