Are you an Employee or a Subcontractor?


Are you an Employee or a Subcontractor?

Many businesses engage subcontractors as part of their workforce. A subcontractor issues invoices to the business for services rendered and is not an employee.

From an employer’s point of view it is very important to ensure that a subcontracting arrangement is legitimate.  If not, despite any written agreement, a subcontractor may be considered an employee (having regard to the relevant tests) by the courts and/or agencies such as the Australian Tax Office.  If, for example, the subcontractor is considered to be an employee by the Australian Tax Office, then the employer may be liable for PAYG payments that should have been made as well as interest and penalties.  The employer may also then be liable retrospectively for superannuation and any other entitlements/payments, which the person who is deemed to be an employee, should have received.

Some basic differences between employees and subcontractors are as follows:

  • A subcontractor issues an invoice for services rendered to the employer and an employee is paid a wage, salary and/or commission by the employer for the time worked.
  • A subcontractor can decide when and how the work is done subject to the terms of any contract or agreement whereas an employer can tell the employee how the work should be done.
  • A subcontractor is legally responsible for his/her work. An employer is legally responsible for the work done by the employee.
  • A subcontractor can employ someone else to do all or some of the work. An employee is paid to do the work by the employer for a wage or salary and/or commission and can’t pay someone else to do the work.
  • A subcontractor works independently and provides services as specified in a contract or agreement and can accept or refuse any additional work. An employee works within the business and is considered part of the business.
  • Subcontractors use their own tools and/or equipment which are required to complete the work. Employers provide all necessary items and/or equipment to complete the work to employees. Employees may also be entitled to an allowance or reimbursement for any expenses incurred while completing their work.

Some subcontract agreements can be very long and complex depending on the industry you are in. If you find yourself in a situation where you are asked to sign unfamiliar and complex legal documents you should consider seeking legal advice. We can provide you with practical advice to ensure that you are not taking on unnecessary risks and obligations and we will point out any unusual terms and ensure that you understand your contractual obligations and the consequences of not fulfilling them. Before commencing work we will provide a realistic estimate of the cost. In some cases we may be able to provide a fixed fee or cap our fees.

If you are a business owner and wish to ensure that your subcontract agreements or employment agreements are legally compliant and able to withstand scrutiny, our commercial lawyers can review, draft and negotiate a range of subcontract agreements and employment contracts.

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