Employees versus Independent Contractors - Part 3

Posted on 30 May 2013

Part 3 – Consequence of getting it wrong

Parts 1 & 2 of our Blog Series - 'employees Independent Contractors vs Employees focused on the key criteria the courts have used to define the employment and independent contractors relationship. We now look at the consequences of getting it wrong.

Independent contractors deemed to be employees

Where contractors are found to be employees of a business, the business can be held liable for employee benefits, tax and superannuation obligations, as well as being exposed to unfair dismissal claims. Businesses may also face civil penalties under the "sham contracting" provisions of the Fair Work Act 2009 (Cth).

Where a relationship has been improperly classified as an independent contractor relationship when in fact they are truly an employee, the employer could be found liable for:

  • Underpayment of wages;
  • Breach of Industrial Awards;
  • Annual and Long Service Leave;
  • Superannuation (see below)
  • PAYG liabilities;
  • Workers Compensation insurance premiums & penalties;
  • Industrial claims such as Unfair Dismissal

All businesses need to be aware of the increased likelihood that contractors with a sole principal in an unincorporated structure will be deemed employees by the Fair Work Commission despite strong evidence to the contrary and need to consider the potential financial impact that it will have on their organisation

For more information on employees, contractors and liability for employers to pay statutory entitlements please contact us

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