Employee or contractor? Understand the difference and stay compliant

It is essential for a business to establish the difference between an employee and an independent contractor to ensure legal compliance.

Difference between worker and independent contractor

Employees are entitled to paid leave, superannuation, unfair dismissal protections, and workers compensation cover. Independent contractors, on the other hand, manage their own tax and superannuation, and must arrange personal injury insurance. To work out the difference between an employee or contractor, visit the ATO’s website here.

New test to determine if someone is a contractor or an employee

Starting 26 August 2024, new laws were introduced to provide protections to independent contractors. This includes a test used by constitutionally covered businesses to determine if someone is a contractor or employee. This may apply to you if you are a business with ‘Pty Ltd’ or ‘Ltd’ in its business name. Click here to learn more about constitutionally covered business.

The ‘whole of relationship’ test now considers:

• The real substance and practical reality of the working relationship
• How much control the business has over the worker
• Who supplies tools and equipment
• Whether the worker can delegate tasks
• Financial risk and responsibility
• How work is performed in practice

Click here to learn more about the Whole of relationship test.

Information about employees and contractors in your jurisdiction

• Western Australia
• New South Wales
• Northern Territory
• Australian Capital Territory
• Tasmania

Gig economy workers: A new category

The rise of the gig economy has changed how many Australians work. Flexible, on-demand jobs have replaced traditional nine-to-five roles for many people. Recent changes to the Fair Work Act, known as the Closing Loopholes reforms, aim to clarify who is an employee and who is an independent contractor.

The Fair Work Commission now recognises ‘employee-like workers’ in the gig economy. These are people who work through digital platforms (like rideshare or food delivery apps) and meet certain criteria, such as low bargaining power or pay at or below employee rates. The definition of a ‘worker’ can vary across jurisdictions, click here for Safe Work Australia’s definitions of worker resource.

Workers in the gig economy are now entitled to:

• Minimum standards set by the Fair Work Commission
• Protection from unfair deactivation
• The right to collective bargaining
• Access to dispute resolution mechanisms.

Read more about the changes here.

What should your business do next?

• Review your current worker arrangements in light of the new laws
• Check worker status using tools on business.gov.au and ATO.
• Ensure you have the right workers compensation insurance in place
• Stay up to date with Fair Work Ombudsman and Safe Work Australia.

How worker status affects workers compensation

Workers compensation insurance is compulsory for most employers in Australia. It covers medical costs and lost wages if a worker is injured at work. GIO can offer Workers Compensation Insurance for businesses in Western Australia, the Northern 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.