Shaun Stephenson – Solicitor, Commercial and Succession Planning
You often hear of high profile businesses being under scrutiny for underpaying their staff or being subjects of employment claims due to incorrect staffing engagement. This can occur in any industry from supermarkets to airlines.
No matter how large or small your business is, if you are engaging and paying staff to work as part of your business, it must be clear whether those staff members are engaged as employees or contractors. It may seem like a simple question, but more often than not, the answer is far from being black or white. If a business gets the answer wrong, it can open the business up to significant financial consequences, detrimental tax implications and potential employment claims.
If you are engaging staff as contractors, you must ensure that they are indeed contractors and that you can satisfy the relationship as being that of a true contractor arrangement and not a “sham” contractor arrangement.
Having worked with many clients in reviewing their staffing engagements to ensure compliance, we have summarised some key questions you should be asking yourself to determine if your staff are employees or contractors.
WHO HAS CONTROL OVER THE WORK BEING COMPLETED?
- Employee – Employees are under direction from their employer as to how, where and when the work is to be completed.
- Contractor – Contractors can complete the work at their own discretion and can delegate tasks to other people to complete. Contractors may also be engaged by more than one business at a time.
WHO DECIDES THE WORKING HOURS?
- Employee – Generally has set and defined working hours as directed by the employer.
- Contractor – Can generally complete the work during their own designated hours.
WHO BEARS THE RISK OF THE WORK BEING DONE?
- Employee – Does not have the burden of any risk for the work completed as employers wears such risk.
- Contractor – Is responsible for risks associated with the work being completed and therefore is generally required to take out their own separate insurances for the works.
HOW DOES PAYMENT WORK?
- Employee – Is paid for their time per hour or by way of a salary, generally by way of routine payments weekly or fortnightly.
- Contractor – Is paid for completing set work tasks at a previously agreed rate. Contractors invoice the business, and the business pays once the work is complete.
WHO OWNS AND PROVIDES THE EQUIPMENT TO COMPLETE THE WORK?
- Employee – Uses the equipment as provided by the business. For example, computers, vehicles and tools which are owned by the business.
- Contractor – Generally uses their own equipment to complete the work at the Contractor’s own cost.
DOES THE STAFF MEMBER RECEIVE SUPERANNUATION CONTRIBUTIONS AND LEAVE ENTITLEMENTS?
- Employee – Businesses engaging employees are required to contribute to an employees’ superannuation and depending on their employment status, employees are entitled to annual leave, personal leave and long service leave entitlements.
- Contractor – Not entitled to superannuation contributions or any leave entitlements.
WHAT ENTITY IS THE BUSINESS ENGAGING?
- Employee – Is always engaged under their personal names in their individual capacity.
- Contractor – Generally engaged through an individual’s trust or company entity.
It’s important to remember, that it is likely some of your answers may fall onto both sides of the scale, which is where the difficulty can arise in determining if your staff are employees or contractors.
For assistance in reviewing your staff’s engagement or to work together in developing the appropriate contracts to formalise their engagement, please contact the Beck Legal team on (03) 5445 3333.