Do contractors have the same rights as employees?

With the COVID-19 outbreak affecting the economy and job market, an increasing number of Australians are becoming full-time or part-time contractors. The fact that thousands are choosing to contract over the lure of fixed jobs, incomes, and hours speaks volumes about the advantages that the field of contracting has to offer for both the contractor and the employer. 

So, what do employers need to know about engaging contractors? What are their legal rights and are they any different to employees? 

Who is considered a contractor?

Contractors are individuals who work on a contract basis to provide materials, services, or products. They are paid on an hourly or daily basis, unlike employees who get paid a regular salary. In terms of responsibilities, a contractor’s job profile is similar to that of a regular employee, except that they usually earn more as they will often forfeit typical entitlements that regular employees take for granted. 

Contractors differ from employees in several ways:

  • Contractors have more control over their work than employees who work under the direction of their employers.
  • Contractors are responsible for their risks, profits, or loss while employees enjoy a regular salary independent of company performance (except in the case of cutbacks).
  • Contractors do not enjoy superannuation benefits, unlike employees, except in a few cases,
  • Contractors pay their tax and GST to the government while employees receive their taxes after deducting income tax. An employer cannot withhold the taxes of a contractor. 
  • Contractors are not entitled to annual, sick, long, personal carers, or extended leave.

Contractors are often exposed to new skills and environments during the course of their work. The employer can dismiss the contractor, or the contractor can discontinue working without due process.

However, a number of disputes and problems may arise if the contract agreement is unfair, broken, or breached.

What rights do contractors have?

The Fair Work Act of 2009 protects independent contractors from unlawful and unfair practices. For example, an employer cannot force a contractor to forego their rights, and contractors cannot be coerced into unlawful contracts containing unreasonable terms. Contractors are entitled to control over their work, fair hours of work, and may work on multiple projects, but must operate under the obligations and duties listed out in the contract agreement. 

Similarly, contractors are free to join or not join an employer or union group. A court may cancel an agreement if the contractor was forced to sign it under undue pressure or if the terms of service contravene Australian laws. 

When can the line between contractor and employee become blurred?

There are several instances where a contractor may actually be considered an employee for tax or superannuation purposes. This is to prevent employers from unfairly employing people on a contract basis simply to avoid paying tax or superannuation. Check out the ATO’s Employee/Contractor Decision Tool to determine how your team members should be classified and what your obligations may be.

Rolf Howard, Managing Partner, Owen Hodge Lawyers

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