Contract work and freelancing is on the rise as long-term job security decreases across Australia and more people seek flexible working arrangements. Contractors and freelancers should be aware of their obligations and rights under employment law, particularly because they don’t have the same protections as an employee.
‘Freelancer’ is a colloquial term for a type of contract worker. ‘Contractor’ is the term that will be used throughout the rest of this post.
Am I a contractor or employee under employment law?
Determining whether a worker is a contractor or employee requires more than looking at the job title or what the employer advertised for. It is determined by looking at the relationship between the worker and hirer, the nature of the work and several other indicators. No single indicator is determinative of the nature of the employment relationship.
These indicators under employment law include:
- The amount of control over how work is performed. An employee works under the ongoing direction of an employer whereas a contractor has a lot more control and freedom to determine how the work is completed.
- Whether work can be subcontracted. Employees cannot subcontract their work, whereas contractors generally can.
- Control over the type of work performed. Employees must perform all tasks that are reasonably within their job description under the direction of their employer. Contractors are free to accept or refuse additional work on top of what they are originally contracted for.
- Who supplies the tools and materials. Employers usually supply all tools and materials needed for a job for their employees. Contractors usually provide their own tools and materials.
- The hours and days of work. An employee works either standard hours or a casual employee has shifts based on a roster. A contractor decides by agreement what hours or timeframe they have to complete specific tasks.
- Expectation of work availability. An employee will often have an expectation of ongoing work, whereas a contractor is usually engaged for a specific task.
- Financial risk. Employees don’t bear financial risk from their work (this includes profit making and work safety and insurance). Contractors are usually liable for poor work, and they have to cover themselves for any injury they incur on the job.
- Superannuation. Employers must pay superannuation for their employees. Contractors pay their own superannuation.
- Entitlements. Employees are generally entitled to benefits such as sick leave, annual leave and unpaid parental leave. Contractors aren’t entitled to these benefits.
Which employment law applies to me?
There is a patchwork of state and federal employment law that covers contract workers across Australia.
The provisions relating to sham contracting in the federal Fair Work Act 2009 apply to most contract workers. However, all other aspects of their work may be covered by federal or state employment law.
Workers who are covered by Federal employment law (Independent Contractors Act 2006, Independent Contractors Regulations 2007):
- When the service hirer is a constitutional corporation, the Australian Government or a resident of an Australian territory such as the Northern Territory or the Australian Capital Territory
- When the contract was entered into in a territory
- The services will be performed in a territory
- One of the parties to the contract lives in a territory
- Owner-drivers in states and territories other than New South Wales, Victoria and Western Australia
Other contract workers will be covered by the relevant legislation in their state.
Contract workers are generally responsible for paying their own tax.
Australian Business Number (ABN)
Contractors need to obtain an ABN and provide that number to businesses who hire their services. If a contractor doesn’t provide their ABN, the service hirer may withhold the top rate of tax plus the Medicare levy and remit it to the Australian Tax Office (ATO).
Goods and Services Tax (GST)
The GST is applied to most goods and services supplied in Australia. Contractors generally have to register for GST.
Personal Services Income (PSI)
Contractors are entitled to claim some expenses that are necessary to their work as tax deductions. The PSI rules determine which expenses you can claim against your tax.
Taxation is complicated, particularly for contractors. It is best to contact the ATO for more information.
Unfair contracting (under the Independent Contractors Act 2006)
This section is relevant to contractors who are covered by the Independent Contractors Act, as explained above. Other contractors should contact the relevant state department, such as a state revenue office, to find out whether unfair contracting laws apply under the state employment law legislation.
Under the federal employment law legislation, there are remedies for an unfair contract. Unfair contracts occur when the terms of a contractor’s work are unfair or harsh.
In determining whether a contract is unfair or harsh, some of the factors courts consider are:
- The contract terms at the time it was made
- Any more recent adjustments to the contract
- The relative bargaining power of the contractor and service hirer
- Whether one of the parties to the contract pressured or used unfair tactics to coerce the other party into contracting
- How much the contractor is being paid and whether an employee would likely receive more money for the same work
If you think your work contract is unfair, the first step is to try to resolve the dispute through mediation or negotiation. You can apply for a court order only if this process fails.
If a court decides that your work contract is unfair or harsh, they may:
- Alter some of the contract’s terms including adding or removing them
- Set aside the contract so that it no longer has any effect
Sham Contracting (under the Fair Work Act 2009)
Sometimes employers try to avoid their obligations to employees under employment law by engaging them as an independent contractor. This is prohibited under the Fair Work Act.
The sorts of prohibited actions that an employer might take are:
- Misleading an employee by telling them that they are a contractor,
- Threatening an employee with dismissal (or actually following through) to rehire them as a contractor doing the same work,
- Engaging someone as a contractor to avoid paying entitlements such as personal leave and annual leave, superannuation and workers compensation.
Employment Law Entitlements
Contract workers don’t receive the same employment law entitlements as employees. This means that they are generally responsible for organising their own superannuation and workers compensation insurance. Contractors aren’t eligible for paid leave.
However, contract workers do have the right to a safe and healthy workplace. Service hirers must provide a safe and healthy workplace for contractors. This means complying with workplace health and safety laws and the service hirer may be liable to the contractor if they breach these laws.
Essential Legal Documents for Independent Contractors
- Independent Contractor Agreement (Sole Trader) Kit – Australia
- Independent Contractor Agreement (Company) Kit – Australia