Contract labour entitlements for non-employees – what are they?

Understanding contract labour entitlements has always been complex and confusing.

The benefits and entitlements available to contractor labour in Australia, under Workplace and Fair Work laws, can sometimes be difficult to clearly determine. Factors influencing this determination include the nature of the worker engagement, the style of work they’re to undertake (time-based and/or output-based, for example), and a host of other factors.

The easiest way to simplify this legal conundrum, in our view, is to look at the definitions and statutes of engagement for the two main categories of worker: employees and independent contractors. Then put it in a list. Which is what we’ve done.

Remember this: to accurately determine if a worker is a contractor or a permanent staff member, you need to undertake a review of their entire working arrangement, and the specific terms and conditions of their contract.

But overall, here are the differences, specific benefits and responsibilities of each party to the working relationship:

ScenarioContractorEmployee
SuperannuationMostly, the contractor pays their own super. However, there are situations where contractors are entitled to super. Take a look here. Most often, superannuation isn’t typical of contract labour entitlements.The employer is required to pay superannuation contributions into the nominated fund of the employee.
TaxThe contractor pays their own tax and GST to the Australian Taxation Office (ATO).The employer deducts income tax.
Having an Australian Business Number (ABN)Having an ABN makes no difference as to whether a worker is deemed an employee or a contractor.

Some business owners are known to request ABNs from workers, or place pressure on workers who are employees to obtain one, hoping this will deem the worker a contractor. This can be an attempt to disguise the employment relationship to make it look like contracting to avoid PAYG withholding and superannuation obligations.

Work hoursThe contractor works the hours required to complete the set task or deliverable. This is typically done in consultation with the employer.The employee typically works set work hours (casual employees being the exception).
Transportation to workProviding transportation or covering the cost of transportation isn’t usually afforded to contractors.If the employer provides transportation or covers the cost of transportation, then the worker is most likely an employee.
Expectation of work to be doneThis is limited for a contractor, and is usually based on a specific task, deliverable or limited timeframe.For the employee, there is an ongoing expectation for work to be done. However, there are circumstances when an employee is engaged for a specific deliverable or timeframe.
Tools of trade (including hardware, software etc.)The contractor will mostly use their own tools and equipment, unless different arrangements are agreed upon within a contract for services, for example. Ultimately, tools of trade are not typically part of contract labour entitlements.The employer generally provides the required tools and equipment for the worker to execute the job.
The business has always used contractorsIrrespective of past engagements, before taking on new contractors, a business must check whether the worker is an employee or contractor by examining the proposed working arrangement. If a worker is wrongly determined to be a contractor, it bodes poorly for future contractors coming into the business. Read all caveats below.
RemunerationWhere the worker has an ABN, they submit invoices for their work as agreed with the organisation. For example, at the conclusion of the contract period, at specific milestones of the contract delivery or at the conclusion of a project.Where the worker is paid regularly (for example, monthly or weekly) the relationship is that of an employee.
RiskThe contractor takes on the risk of making a profit or loss on each contract undertaken. They typically bear responsibility if they’re injured while delivering the contract or if they deliver poor quality of work. Will most often have their own insurance policy.The financial risk is entirely the responsibility of the employer.
Control over how the work is deliveredIs reasonably autonomous, with high-level control as to how the work is delivered.The work is delivered as directed by the employer on an ongoing basis.
Taxes and Medicare levies are deducted from the worker’s payTaxes and Medicare levies don’t apply when it comes to contractor labour entitlements.The worker is likely to be an employee.
The worker can freely assign work to someone elseIn this scenario, the relationship is a contracting one. Contractors are free to deliver the work as they see relevant and fit, which may include delegating work to others.Where consent from the employer is required for work to be delegated, the relationship is most likely that of an employee/employer, unless there are specific stipulations in the contract of engagement.
Workers are engaged for their specialist skills and qualificationsThis scenario doesn’t mean the worker is automatically a contractor. Again, it depends on the terms of the arrangement, the nominated timeframe and expected output. The worker’s qualifications play no part in the determination.

 

As always, in any worker engagement, the requisite caveats apply (and are really, really important for you to be across). These include (but are not limited to):

  • Having all worker engagement contracts pre-approved with legal counsel
  • Making sure you’re across payrates and contract labour entitlements, based on the nature of the worker engagements
  • Remembering that ‘set and forget’ is not a thing when it comes to contractor engagement, nor of contract labour entitlements
  • Building credible, realistic parameters into your independent contractor agreements
  • Thinking about outsourcing the management of your contractors to experts who will mitigate any risks associated with taking on contract labour (like us!)

Here are some valuable resources for you to keep handy…

 

As one of the world’s leading providers of contingent worker management solutions, CXC is well positioned to optimise all elements of your contingent workforce strategy. With operations in more than 50 countries across five continents and decades of experience, we can assist with every aspect of your program.

If you are interested in discussing our learnings and would like to find out more about how we can help, please contact us here.

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