Employees versus Independent Contractors - Part 2

Posted on 28 May 2013

Part 2 – Additional criteria to consider

In part 1 of our Blog Series – Independent Contractors vs Employees we covered some of the fundamental issues to determine the true nature of each of these relationships.

Some additional criteria for assessment in relation to 'employee versus independent contractor' (referred to by the Courts as the 'integration test') has been used to offer to reinforce conclusions based on the lawful authority to command concept. The 'integration test' should be used as another relevant consideration to be taken into account in conjunction with the above stated factors.
 

Features of Relationship

Employee - Contract of Service

Independent Contractor - Contract for Services

Lawful authority to command

Under a contract of service, the payer usually has the right to direct the manner of performance. Of course, where the nature of the work involves the professional skill or judgement of the worker, the degree of control over the manner of performance is diminished. What is important is the lawful authority to command that rests with the payer.

The hallmark of a contract for services is said to be that the contract is one for a given result. The contractor works to achieve the result in terms of the contract. The contractor works on his/her own account.

How is the work performed?

Tasks are performed at the request of the employer. The worker is said to be working in the business of the payer.

An independent contractor enters into a contract for a specific task or series of tasks. The contractor maintains a high level of discretion and flexibility as to how the work is to be performed. However, the contract may contain precise terms as to materials used and methods of performance and still be one for services.

Risk

An employee bears little or no risk. An employee is not exposed to any commercial risk. This is borne by the employer. Further, the employer is generally responsible for any loss occasioned by poor workmanship or negligence of the employee.

An independent contractor stands to make a profit or loss on the task. They bear the commercial risk. The contractor bears the responsibility and liability for any poor workmanship or injury sustained in performance of the task. Generally a contractor would be expected to carry their own insurance policy.

Place of Performance

A worker under a contract of service will generally perform the tasks on the payer's premises using the payer's assets and equipment.

A contractor on the other hand will generally provide all their own assets and equipment.

Hours of work

An employee generally works standard or set hours.

An independent contractor generally sets their own hours of work.

Leave Entitlements

The contract will generally provide for annual leave, long service leave, sick leave and other benefits or allowances.

Generally an independent contract would not contain leave provisions.

Payment

An employee is generally paid an hourly rate, piece rates or award rates.

Payment to an independent contractor is based upon performance of the contract.

Expenses

An employee is generally reimbursed for expenses incurred in the course of employment.

An independent contractor incurs their own expenses.

Appointment

An employment is generally recruited through an advertisement by the employer.

An independent contractor is likely to advertise their services to the public at large.

Termination

An employer reserves the right to dismiss an employee at any time (subject to State or Federal legislation).

An independent contractor is contracted to complete a set task. The payer may only terminate the contract without penalty where the worker has not fulfilled the conditions of the contract. The contract will usually contain terms dealing with defaults made by either party.

Delegation

An employee has no inherent right to delegate tasks to another. However, there may be a power to delegate some duties to other employees.

An independent contractor may delegate all or some of the tasks to another person, and may employ other persons.

The answers to these questions will help determine whether or not a worker is likely to be deemed an independent contractor or an employee by the Fair Work Commission.

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