Employee or Independent Contractor? How to avoid the penalties caused by misclassification.

Fair Work Inspectors are cracking down on business owners who fail to correctly classify the terms of engagement of their workers. Business owners listen up because with maximum penalties of $12,600 for individuals and $63,000 for corporations, it may be worth reviewing the terms upon which your workers are engaged.

The Fair Work Act 2009 and the Independent Contractors Act 2006 exist to protect employees and independent contractors and govern the manner in which they are engaged to carry out work. Whilst each particular engagement is judged on its merits, here are some important factors to consider when determining whether someone is an employee or an independent contractor:

  • The degree of control over how work is performed – If a person regularly carries out work under direct instruction and supervision, it is likely he/she is an employee, as contractors are often given a great deal of control over how work is done.
  • Hours of work - If a person is engaged for structured hours, it is likely that he/she is an employee, as contractors themselves often determine the hours they work.
  • Expectation of work - If a person has an expectation of repeat work from the same business or company, it is likely that he/she is an employee, as contractors are usually engaged for set tasks and may carry out other work for different businesses, companies or individuals.
  • Risk – If liability rests with an employer in the event of a mistake or defect, it is likely that the person is an employee, as contractors are often responsible for fixing mistakes and defects at their own cost.
  • Superannuation - If a person is entitled to be paid superannuation, then he/she is an employee, as contractors are responsible for paying their own superannuation.
  • Tools and equipment - If a person is not required to supply their own tools to carry out work, it could be that he/she is an employee, as contractors are often required to use their own tools and equipment.
  • Tax - If a person has income tax deducted by an employer, it is likely that he/she is an employee, as contractors pay their own income tax and GST to the Australian Tax Office.
  • Method of payment – If a person is paid on a regular basis for hours worked, it is likely that he/she is an employee, as contractors are required to have an ABN and submit invoices for work or are paid at the end of a contract.
  • Leave - If a person is entitled to receive paid leave, this could indicate that he/she is an employee, as contractors are not paid for any leave they take.

For assistance in determining how your workers should be classified and to reduce your risk of incurring penalties for misclassification, call Axia Litigation Lawyers today to arrange a consultation. Because at Axia Litigation Lawyers, every move matters!

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