This is a common question we encounter, particularly after recent reforms concerning sham contracting which came into effect earlier this year.

To help ensure that you’re correctly classifying employees and independent contractors, this week’s Akyra blog takes a look at a recent Fair Work Commission (FWC) ruling on this issue and outlines some key takeaways to help  you minimise the risks. 

Contractors vs employees

Identifying when someone should be categorised as an employee or an independent contractor can be tricky.

Even if a worker has an ABN and is paid via invoice, this does not necessarily mean they are an independent contractor.

There may be aspects of the working arrangement that suggest they are an independent contractor, such as having their own ABN, providing their own equipment, managing their tax and super, and maintaining insurance.

However, if the worker cannot source and undertake other work, promote their services, or delegate/sub-contract the work, it may still be an employee relationship. This can also apply even if the worker is employed through a proprietary limited company.

Recent case study

A recent case before the full bench of the FWC determined that a worker was an employee, despite clauses in the contract suggesting they were an independent contractor. The FWC’s detailed review of the contractual rights and obligations found the worker was fully integrated into the business.

In this case, a disability support worker alleged unlawful dismissal by an employer providing home care and safety services. Despite an independent contractor agreement where the worker had an ABN, provided their own equipment, and managed their tax, super, and insurance, the FWC found that key contract provisions indicated the worker was fully incorporated into the employer’s operations.

The worker:

• Was provided work according to case plans managed by the employer.
• Was paid an hourly rate.
• Had to submit weekly timesheets for processing.
• Was required to be available to work within agreed hours.
• Had to comply with the employer’s policies and procedures.
• Was restricted from providing services to or being employed by a competing business.
• Was restricted from sub-contracting or delegating the work.

Additionally, the worker could request bookkeeping assistance for invoicing but was not obliged to do so. Payments for care work were made directly by the employer to the worker, and the employer endeavoured to arrange care work for the worker.

The FWC concluded that the “contractual arrangements taken as a whole” left “little if any scope for entrepreneurship on the part of” the worker, implying the worker was an employee. This decision was upheld on appeal, with the Full Bench agreeing that the nature of the services, their timing, and the manner of work were controlled by the employer, indicating an employment relationship.