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Contractor or Employee? Engage workers correctly to avoid sham contracting

Before you engage a consultant or contractor to work for the University, stop and consider whether an independent contractor relationship is appropriate. You may find that the person should be hired as an employee.

Under the Fair Work Act 2009, there are serious penalties for employers (and individuals) who engage workers as contractors when they are really functioning as employees. This is commonly referred to as ‘sham contracting’.

How to determine if a worker should be a contractor or employee

Unfortunately there are no clear legal definitions which help distinguish between a contractor and an employee. You need to look at the relationship as a whole and assess how it will work practically against some key factors. Keep in mind that it’s the reality or substance of the relationship that is most important, not what you label it.

Here are some key factors to help you decide whether a worker should be engaged as a contractor or employee:

Employee

Contractor

  • The University directs how work is performed
  • The worker has a high level of discretion about how the work will be performed
  • The University sets the times and locations for the performance of work
  • The worker sets their own hours of work
  • The worker is paid a periodic salary or wages
  • The worker is engaged for a result, not just the mere provision of labour
  • The worker is paid according to completion of tasks, rather than time worked
  • The University provides the equipment and materials for the work
  • The worker supplies their own tools and equipment
  • The University takes on the risk of insuring and being responsible for the work performed
  • The worker is expected to insure against the risk of causing loss to others in performing the work
  • The worker cannot perform similar work for other organisations
  • The worker advertises their services to the public and performs work for others
  • The worker is identified to the public as being part of the University
  • The worker performs the work themselves and cannot subcontract their work to others
  • The worker can delegate or sub-contract the performance of all or some of the work to others

Things to look out for

While it can be hard to tell the difference, there are some warning signs which may indicate that an independent contractor should actually be engaged as an employee. In particular, pay attention to individual contractors who:

  • are repeatedly engaged to perform core business work like teaching and administration;
  • are required to work at the University’s premises during standard business hours;
  • use the University’s resources;
  • are paid fortnightly; or
  • do not have clients outside the University.
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