Have I hired a contractor or an employee at my startup?

By Vivian Michael | Employment

Have I hired a contractor or an employee at my startup?

Understanding the difference between an employee and contractor can save you a lot of money and help you avoid disputes with your workers. 

Too busy to read on? check out our 47 second summary video below.

Do you know how you have classified your worker? that is, if they an employee or a contractor? Do they know how they have been classified?

If you have a written agreement that clearly outlines your relationship with your worker then that's great. However, if not and you have a verbal arrangement that has become confusing, read on. 

Contractor?

 So how do you know if you've hired a contractor?

If you have hired a contractor it is likely that they will work on your startup this way:

  • autonomously with little or no direction
  • sets their own work hours.
  • uses their own tools and equipment to get the job done e.g. laptop
  • has and uses an ABN
  • pays their own taxes
  • pays their own superannuation
  • usually has their own insurance policy
  • does not receive paid annual leave

If you worker meets the criteria above,  you may wish to read up on our tips for hiring a contractor.

Employee?

It follows then if you have not got a worker with characteristics above it is likely they are an employee.  And if you've hired an employee, it is likely that you: 

  • set their work hours
  • pay them directly into their bank account At regular intervals
  • provide them with the tools and equipment they need to get their job done
  • deduct tax from their pay
  • pay them superannuation
  • supervise or direct the work that  they complete
  •  pay them annual leave

It's important to note that the courts will not look at one single factor. Rather, courts will look at the totality of the relationship to determine if  your worker is an employee or a contractor. 

Help for incorrectly classifying a worker

If you are still unsure whether you have hired a contractor or employee, be sure to get legal advice quickly. 

A lawyer may be able to help you negotiate a settlement with the incorrectly classified worker in a way that protects and stops court action against your business.

How?

Terms of settlement or a deed of release summarise the incorrect classification issue and what will actions need to be taken to resolve it e.g. payment of annual leave, superannuation or a fixed amount of money.

Importantly, the terms will have a  release clause to end the situation quickly and stop the worker from starting legal action against you including court etc.

Key points

  • Make sure your arrangements with your workers are clear.
  • Check the criteria above, and fair work's page to determine if you have hired an employee or contractor.
  • Speak to a lawyer if you are unsure.
  • Look at ways to minimise damage from any incorrect classification - a lawyer can help you do this.

Do you need help from an Australian business lawyer for startups? Contact us today for help on info@michaellawgroup.com.au or 1300 478 278 Australia wide or on +61 2 9151 7233 from overseas. We are always glad to help.





About the Author

Vivian Michael is a lawyer and founder of Michael Law Group. Vivian’s mission is to make quality business legal services accessible to startups that would otherwise DIY, rely on legacy contracts or go without.

Leave a Comment:

Leave a Comment: