An employee is someone who performs work under a contract of employment.
Identifying who is, or is not, an employee has become an increasingly disputed area, with a number of different factors to be considered.
Non-employees may be 'independent contractors' or 'sub-contractors' and are employed under a contract for services or even as agents representing a client business.
The legal consequences of being an independent contractor are significantly different to those for employees. Only an 'employee' can be covered by an award or make a workplace agreement. However, some cleaners, outworkers and some drivers of public passenger vehicles who might ordinarily be considered independent contractors are deemed to be employees under the Fair Work Act 1994 (SA) [ss 4, 5], see also Fair Work Act 2009 (Cth) various references to rights of outworkers [for example ss 30F, 47 - 48].
The rights and obligations of employees are very different to those who are self-employed. To distinguish between employees and independent contractors, the courts take into account a number of factors to determine what is the real nature of a particular work relationship. These factors may include the following:
What is most important is that the law will uphold the true nature of a work relationship despite any attempts to make what is really an employer/employee relationship appear to be something else. It is does not matter what label the parties give it, the court goes past that and examines what the relationship really is. The courts look at the totality of the relationship to determine whether the worker is an employee or contractor [Hollis v Vabu Pty Ltd (t/as Crisis Couriers) (2001) 207 CLR 21].
Sometimes an employer may attempt to incorrectly describe the true nature of a relationship so as to avoid responsibilities under various statutes and awards, but the Parliament and courts are wise to this. The Independent Contractors Act 2006 (Cth) and the Workplace Relations Amendment (Independent Contractors) Act 2006 (Cth) came into effect on 1 March 2007 and apply to all independent contractor arrangements which involve a constitutional corporation (that is a foreign, financial or trading corporation), the Commonwealth or a Territory. These Acts impose penalties on businesses that use ‘sham arrangements’ to either disguise employees as independent contractors or coerce employees into independent contracting arrangements.
Under the Fair Work Act 2009 (Cth) an employer must not misrepresent an employement relationship as an independent contract (sham contracting) [s 357] , must not dismiss an employee to engage them as an independent contractor [s 358] and must not make a false statement to encourage someone to be engaged as an independent contractor [s 359].
The Australian Tax Office has an online decision tool to help businesses to understand whether individual workers are employees or contractors for the purposes of tax and superannuation.