Employee or contractor? Understanding the difference

A worker’s classification has significant implications for both them and their employer, which is why it’s so important to get it right. If a worker is an employee, they are entitled to leave, superannuation and protection under unfair dismissal laws, as well as workers compensation cover. If the worker is an independent contractor, they need to manage their own superannuation and tax arrangements, and find suitable personal injury insurance.

Learn more about Workers Compensation Insurance

Workers and the gig economy

The legal classification of contract workers is evolving in response to the emergence of the gig economy, which has supplanted the traditional nine to five job arrangements for many workers.

Five years ago, the Australian Fair Work Ombudsman (FWO) finalised a two-year investigation relating to Uber Australia and it’s engagement of drivers. They concluded that Uber drivers were independent contractors. FWO noted that for an employee/employer relationship to exist, there must be — at minimum — an obligation for an employee to perform work when it’s required by the employer. Uber drivers, FWO found, have control over whether, when, and for how long they perform work.

The Fair Work Commission (FWC) took a similar stance, identifying drivers’ control over the hours worked and ability to refuse trip requests as key factors distinguishing workers and independent contractors. However, in a 2018 decision regarding unfair dismissal, the FWC found that food delivery company Foodora held a lot of control over the work of their bicycle delivery riders. As such, they concluded that Foodora delivery riders were employees.

How the difference impacts workers compensation coverage

For the purpose of workers compensation coverage, the extended definition of a worker can include sub-contractors, where they’re paid for their labour or services. Businesses must assess whether the employment relationship between them and their workforce is based on a ‘contract of service’ or ‘for service’. The former indicates an employee relationship, while the latter does not.

There is no single determining factor or combination of factors. However, according to the FWO, it is likely that an individual is employed within a contract of service and is an employee if they:

• work under the business owner’s control
• are paid for the time they work;
• have income tax deducted by their employer
• receive paid leave (sick, annual, long service etc.)
• use materials or equipment provided by the business to do their job
• perform the duties of the position
• have agreed to provide their personal services
• bear no financial risk, and/or
• work hours which are set by an agreement or an award.

To help businesses understand their working relationships, business.gov.au have created an independent contractors decision tool.

While the legal classification of workers is evolving, the duty of care of employers is not reduced or cancelled. Part of maintaining that duty of care is ensuring that your business has adequate Workers Compensation Insurance.

GIO can offer Workers Compensation Insurance for businesses in Western Australia, the Nortern Territory, the ACT and Tasmania. You’ll also receive support services for your business, including risk management and training courses.

Get a Workers Compensation Insurance quote

Read more:

• Working from home safety checklist
• How to tell your mind the workday is over
• Why taking 5 and doing some relaxation exercises might be the most productive thing you do today

Insurance issued by AAI Limited ABN 48 005 297 807 trading as GIO. In NSW, GIO manages claims as agent for the Workers Compensation Nominal Insurer ABN 83 564 379 108, also known as icare workers insurance.