Employee V’s Independent Contractor


No. 1 (7 May 2010)

Understanding the Difference between an Employer and an Independent Contractor


From time to time an employer needs to make a decison as whether or not to employee or to sub-contract work.

Courts over many years have applied an 80/20 rule based on decisions of the courts and commissons.

Contract of Services v Contract for Services

As an introduction, employment law regulates contracts for work which are contracts of employment (also known as “contracts of service”). The parties to the contract are the employer and the employee.

“Independent Contractor” is the term used to describe workers who carry out contracts for work performed as a “contract for services”. These workers can be described as independent contractors, dependent contractors, small business operators, sole traders, feelancers and entrepreneurs.

What I have set out below are what has variously referred to as principles, criteria, tests or indicia of the relationship that need to be answered as to whether a person is an employee or an independent contractor.

I have relied on the following cases as precedents in this matter:

Addallah, Abraham v Viewdaze Pty Ltd t/as Malta Travel (PR927971) (PR925374) AIRC (2003);

Stevens v Brodribb Sawmills Co Pty Ltd [1986] HCA 1; 160 CLR 16 (13 February 1986)

Hollis G.J.  v Vabu Pty Ltd t/as Crisis Couriers [2001] HCA 44; 207 CLR 21; 75 ALJR 1356; 106 IR 80; 181 ALR 263 (( August 2001)

1. Whether the putative (alleged, reputed, supposed) employer exercised or has a right to exercise control over the manner in which work is performed including the place of work, hours of work and similar matters; see control test below;

2. Whether the worker performs work for others, or has a genuine and practical entitlement to do so;

3. Whether the workers has a seperate place of work and/or advertises his or her services to the world at large;

4. Whether the worker provides and maintains significant tools or equipment;

5. Whether the work can be delegated or subcontracted;

6. Whether the putative employer has the right to suspend or dismiss the person engaged;

7. Whether income tax is deducted from remuneration paid to the worker;

8. Whether the worker is remunerated by periodic wage or salary or by reference to completion of tasks;

9. Whether the worker is provided with paid holidays or sick leave;

10. Whether the work involves a profession, trade or distinct calling on the part of the person engaged;

11. Whether the worker creates good will or saleable assets in the course of his or her work; and

12. Whether the worker spends a significant portion of his remuneration on business.

In Abdallah, the Full Bench said;

If the indicia point both ways and do not yield a clear result the determination should be guided primarily by whether it can be said that, viewed as a practical matter, the individual in question was or was not running his or her own business or enterprise with independence in the conduct of his or her operations as distinct from operating as a representative of another business with little or no independence in the conduct of his or her operations.

It was also the view of the Full Bench in Abdallah that if, after weighing these indicia, the result is still uncertain, then the determination should be guided by the notions referred to in the judgement of the majority in Hollis v Vabu including the statement that the distinction between an employer and an independent contractor can be “is rooted fundamentally” in the difference between a person who serves his or her employer in the employer’s business, and a person who carries on his or her own trade or business.

CONTROL TEST- To be applied in first instance but not the only indicia

As to the control test it was referred to in Brobribb as “the degree of control which the former can exercise over the latter” It has been held that the importance of the control lies not so much in its actual exercise, although this is clearly relevant, as in the right of the employer to exercise it.

Control is not now regarded as the only relevant facor. Rather it is the totality of the relationship between the parties which must be considered.

The approach now taken by by the courts has been to regard the control test as one of a number of indicia which must be considered in the determination of the question.