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.

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 9 to 5 job arrangements for many workers.

In Australia, the Fair Work Ombudsman (FWO) recently finalised a two-year investigation¹ relating to Uber Australia and its 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 in 2017 and 2018, identifying drivers’ control over the hours worked and ability to refuse trip requests as key factors distinguishing workers and independent contractors. However, the FWC found that the food delivery company Foodora² holds a lot of control over the work of their bicycle delivery riders. As such, they concluded that Foodora delivery riders are 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 their workforce is based on a ‘contract of service’ or ‘for service’. The former indicates an employee relationship, while the latter doesn’t.

There is no single determining factor or combination of factors. However, it is likely that an individual is employed within a contract of service and is an employee if they³

• 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, and so on)
• 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.⁴

While the legal classification of workers is evolving, the duty of care of employers isn’t 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 WA, NT, ACT and TAS. You’ll also receive support services for your business, including risk management and training courses. For more information please get in touch.

Learn more about Workers Compensation Insurance

Read more:

• Workplace risks during the festive season
• Be heat vigilant this summer
• Managing mental health in the workplace

¹ Fair Work Ombudsman: Uber Australia investigation finalised.
² FWC: Joshua Klooger V Foodora Australia Pty Ltd.
³ Fair Work Ombudsman: Independent contractors and employees.
⁴ Business.gov.au: Independent contractors decision tool.

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.