Employees v Contractors: What is best for you and your business?

What's the difference between an employee and contractor?

It is more important than ever to ensure that the relationship between you and your employees or your contractors is comprehensively covered. In 2022 alone, there have been two High Court cases delivering judgements on the importance of declaring an individual’s employment status under written contracts and agreements.


What is an employee and what is a contractor?

Whilst, employees and contractors often undertake the same or similar types of work, their employment status is what separates them.

In general, an independent contractor is an individual who works for themselves and who you engage to work for a specific time or task.

In comparison, an employee is someone who works in another person’s business and as a result an employer controls how, when and where they do their work and pays them a wage in return.

There a several substantial differences between an employee and a contractor. The most obvious difference is that an employee intends to create an employment relationship between themselves and the employer, whilst an independent contractor only intends to be engaged for specific project or term.

The other great divide between employees and contractors is in relation to the amount of control they have over how the work is to be performed. For example, an employee performs work and tasks under the direction and control of their employer including where, when, and how they are supposed to complete the work. Alternatively, an independent contractor has a high level of control over where, when and how they do the work they are contracted to do.

However, despite the significant control that contractors have, there are significant benefits employees enjoy because of their relationship with an employer. One such benefit is that employees bear no financial responsibility and risk in relation to the work undertaken. This instead is the responsibility of their employer. For independent contractors, they are required to bear the risk and responsibility for making a profit or loss on each task they perform.

Another benefit employees enjoy is the expectation of continuing work and entitlements to leave (dependent upon their employment status. ie. whether they are a permanent or casual employee). For most employees, the relationship with their employer and their status as a permanent, part-time, or casual employee entitles them to the expectation of ongoing work. However, independent contractors do not have this expectation, as they are usually engaged for specific or one-off tasks. This expectation of continuing work also includes the benefit of receiving paid leave or receiving loading in lieu of this entitlement in the case of casual employees, neither of which independent contractors receive.


Recent Developments

On 9 February 2022, the High Court made two judgements in separate proceedings regarding employment relationships, namely Construction, Forestry, Maritime, Mining and Energy Union & Anor v Personnel Contracting Pty Ltd [2022] HCA 1 (CFMMEU) and ZG Operations Australia Pty Ltd & Anor v Martin Jamsek & Ors [2022] HCA 2 (Jamsek).

The judgements given in both proceedings, highlighted that where parties have comprehensively committed to the relationship and its terms in a written contract, the written contract is held to be of paramount importance.

As a result of this it is more important than ever to ensure that you have the correct employment contracts in place, with the court holding that these contracts will be the main basis for the reasoning as to the nature of an employment relationship.

Get in touch

If you or someone you know wants more information on the above or needs help or advice regarding their employment contracts, please contact us.

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