Subcontractor or an employee - how do you know which is right?

It is common in the allied health industry to use sub-contractors to provide services, especially when you are not ready to take the leap to employ someone on a permanent basis. However, it is important to understand that whether a worker is a contractor or an employee is determined by the nature of the relationship, not what the agreement is called. What are some of the risks involved in engaging with independent contractors?

What is the difference between an independent contractor and an employee?

Independent contractor:

1. Operates under Australian Business Number (ABN)

2. Can delegate or subcontract the services to be performed by another contractor or a business.

3. Has significant control over the work they perform, such as choosing their clients, the times they wish to work, the location where they want to work, and the way they wish to complete their work.

4. Use their own equipment, for example, their own laptop to take client notes.

5. Usually engaged to complete a specific task, such as an Occupational Therapist completing a functional assessment.

6. Does not receive paid leave, and pays their own tax & GST if applicable.

Employee:

1. Must have their own Tax File Number (TFN)

2. Is required to complete the job themselves

3. Performs work under the direction and control of the employer. The employer decides hours of work, work location, and how work is done

4. Is provided with the tools required, or a tool allowance.

5. Has an ongoing expectation of work

6. May receive leave entitlements (if a permanent employee), also tax is deducted by the employer

Sham Contracting

Sham contracting is an agreement where the employer tells the employee that they are an independent contractor when they in fact are an employee. Businesses risk receiving penalties and charges, such as PAYG withholding penalties or super guarantee charges. Additionally, businesses can face hefty fines, up to $66,600 for corporations, or unfair dismissal claims if terminating the engagement of someone who was wrongly characterised as an independent contractor. If you are unsure if your independent contractors are true contractors, you can complete a quick Decision Tool on ATO website.

If you need help in navigating independent contractor vs employee situations or need assistance with employment contracts, reach out today! We will provide you with a tailored solution and minimise any business risk.