Employee or Independent Contractor? It’s Not the Title That Counts
The recent case of Kuat Chee v Renown Business Solutions Pty Ltd  FWA 5137 (9 July 2012) addressed the difficult topic of when a contractor is truly a contractor, and when they are properly classified as an employee.
The case involved a dispute about payment of redundancy pay, and centred on whether the employer was a “small business” which would therefore be exempt from paying redundancy.
The employer claimed that two of the individuals working in the business were independent contractors and not employees, meaning there were fewer than 15 employees and bringing them under the small business definition. Of relevance here is the evidence that flowed and the decision that followed around whether those workers were contractors or employees.
The Applicant (the redundant employee), in support of his claim that the workers were really employees, relied on the following facts surrounding the workers:
- They were subject to the day to day direction and control of the employer
- They had a dedicated workspace at the employer’s premises
- They generally used the employer’s equipment
- They signed emails as employees of the business
- They worked regular hours from week to week
- They did not quote for provision of services
- They were invited by the employer to social functions
The employer, denying that the contractors were employees, claimed:
- They provided specific services (bookkeeping and IT) through their own businesses
- They invoiced for work done
- They provided contract services to other businesses
- Invoices were paid as gross amounts without any deductions
Commissioner Jones referred to a summary of the law contained in ACE Insurance Ltd v Trifunovski  FCA which relied on the earlier full bench AIRC decision of Abdalla v Viewdaze Pty Ltd (U2002/2346) Sydney, 14 May 2003. These decisions make it clear that there is no single factor that determines whether a person is an employee or an independent contractor; rather it is necessary to examine the totality of the relationship with reference to a number of indicia outlined in these cases.
These indicia include the following:
- Who has effective control over the way the work is performed, the place of work and hours of work?
- Can the worker perform work for others or do they have the genuine right to do so?
- Does the worker have their own place of work or are they available to work in other locations?
- Does the worker use their own tools and equipment?
- Is the worker able to delegate or sub-contract the work to others?
- Can the worker be suspended or dismissed?
- Does the worker present to the world at large as an employee?
- How is the worker paid? (for example a weekly wage as opposed to invoice on completion of tasks)
- Is the worker paid a gross amount or is tax withheld before payment?
- Does the worker receive paid holiday and sick leave?
Where a balancing of the indicia (which are not exhaustive) does not result in a clear distinction either way, the overall test should be whether the person is running their own business with independence in the conduct of their operations, or as a representative of another business with little or no independence in the conduct of their operations.
In the case of Kuat Chee v Renown Business Solutions Pty Ltd the Commissioner found that both workers were in fact employees and not contractors, despite them both holding themselves out as providing services as independent contractors to the business.
Below is a table we have developed containing some of the factors used by the courts to determine the true nature of the working relationship. These guidelines should be read as a whole as none of the criteria are conclusive when applied individually, and the worker may have criteria from more than one classification.
|Employee (Full or Part Time)||Contractor|
|Employer has control over how and when the work is done||Has control over how and when the work is done|
|Usually work is supervised||Usually not supervised- can control how the work is done|
|Set days and hours (can be flexible if agreed)||Flexible days and hours- not set by employer|
|Uses employer’s tools||Uses own tools|
|Receives paid holiday/sick leave||Does not receive paid leave (although can if on long term contract)|
|Paid for hours worked rather than task completion||Paid for project/task completion|
|Relies on employer for ongoing income||Issues an invoice to be paid|
|Cannot refuse to do work (within the job description)||Can refuse to do work|
|Cannot usually work for others at same time||Can earn income from other sources|
|Has expectation of ongoing work||Does not rely on ongoing work|