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When to switch a contractor to an employee agreement

Updated: 7 December 2019

There are differences between employees and contractors. You can read all about those here.

When to use a contractor agreement 

The best use scenario for a contractor agreement is project work by a highly skilled worker. 

Why?

Typically, contractors are autonomous workers that need little or no direction to perform their work which may be a specific project for which they are hired.

Also, contractors usually hold their own insurance and set their own hours of work. 

The contractor test 

We’ve taken you through the contractor test before and you can see the entire test as a refresher below.

The text excerpt below is courtesy of the Fair Work Ombudsman.

The tests and the court 

The tests are simply indicators. There's no rule that you must meet all of the 9 tests to classify a worker either as an employee or contractor.

Of course, if a case is brought before a court then all the 9 factors will be taken into account and the court will make a definitive decision whether the worker is a contractor or employee.

Now, the best outcome is to prudently classify a worker as an employee if most of the employee tests are satisfied.

You should never let it get to the stage of testing the worker's classification in court because this can be expensive and time consuming.

Sham contracting

If a contractor takes a case like this to court, they'll be claiming that you are sham contracting - calling a worker a contractor to get out of paying employee entitlements like sick leave an annual leave. 

When to switch to an employment agreement

If you can see a project will be ongoing, you are directing that worker about how to perform work and setting their work hours, it's likely they should be an employee and not a contractor, so don't risk it.

And, as always, if you’re in doubt, always get advice.

I wish you success in your ventures!


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Vivian Michael
 

Vivian Michael is a lawyer and founder of Michael Law Group. Vivian's mission is to deliver the best quality business legal services to entrepreneurs launching an Australian business, wherever they are in the globe.

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