Independent contractor or employee: important differences

Owners corporations regularly engage independent contractors to carry out tasks such as maintenance and repairs and also employ persons as facility or building managers. It is important therefore that owners committees and strata managers appreciate the difference between a contractor and an employee, particularly in the context of responsibility for deduction of taxation instalments, the superannuation guarantee and Workcover. There can be penalties for misrepresenting the nature of the work relationship or the superannuation guarantee charge, and the owners corporation could be ordered to make back payment of unpaid wages or superannuation. Both a contractor and an employee provide their labour for financial remuneration. So how is an employee providing personal services for hire to be distinguished from a contractor, and particularly an independent contractor, who also provides personal services for hire? Unfortunately, there is no simple or clear definition which explains the distinction between an employee and an independent contractor. It makes no difference whether that person is considered by the owners corporation to be an employee or a contractor, or has an ABN. A court will look to the real substance of the relationship with the owners corporation, the person’s role and function, the nature and interaction between the person and the owners corporation. The court uses what's known as the "smell test" or its intuition to consider the following factors:

  • is the person providing services to the owners corporation
  • as an owner who operates the business; and
  • in providing the services, is the person working in and for that person’s business as a representative of that business, and of the business receiving the work?
However, this exercise may be complicated by the difficulty in distinguishing between a contractor and a casual employee. The person’s entitlement to pick and choose tasks or assignments or work for or provide services to other owners corporation’s and the inability of an owners corporation, beyond not offering further work, to sanction the person, are characteristics of casual employment as well as a contractor. The distinction between time and results – employees are paid for their time and contractors for their results – is also not determinative of the classification, except in obvious cases. So, what should a manager advise the owners corporation? Firstly, the language in a contract between the owners corporation and the person is not determinative of whether the person is an employee or a contractor. It is not sufficient to simply state the parties to the contract agree that the person engaged is an independent contractor; the contract must appropriately and adequately reflect the true nature of the relationship. Secondly. do not assume that a service provider is an independent contractor; if the person is not running his/her own business, then he/she is not. Before engaging a person as an independent contractor, undertake an ABN (or company) search of the person or company. Each relationship needs to be reviewed in the light of the "smell test". Getting it wrong and inadvertently treating an employee as a contractor may be expensive. Ref: Strata Community Aust

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