How do you know if a worker is a contractor or an employee? ProcessWorx HR Advisors are frequently asked this, and the answer is especially relevant for farms that often rely on contractors to run their business. Wrongly classifying an employee as a contractor, or sham contracting can result in penalties if employers are caught doing so. If a contractor successfully claims to be an employee, they can be eligible for back pay on penalties, leave, overtime, and superannuation for their period of engagement which can add up to a big bill!
A recent High Court decision has updated the definition of employee vs contractor, and farmers need to be aware of this and review practices in their business to ensure compliance. The High Court decided if there is a written contract, the definition of the employment relationship is based on the contract however, in the absence of a clear written contract or if the conduct of the parties differs significantly, the true nature of the relationship can be determined by the parties’ conduct.
This decision reinforces the importance of having written contracts to determine employment relationships, either employer-employee or client-contractor. Without a written contract, other contextual factors are taken into consideration to determine the true nature of the relationship. These factors include:
- The ability to delegate tasks: contractors can delegate work i.e., subcontracting, whereas employees cannot.
- The amount of control over work: contractors can determine when work is performed and their hours of work, whereas employees cannot.
- Who holds the financial risk: contractors hold the financial risk if they do not perform work correctly, whereas employees do not.
- Who supplies and maintains equipment: contractors supply and maintain their own equipment, whereas employees are provided equipment by the employer.
- Ability to work for others: contractors can work for other businesses, whereas employees typically cannot due to conflict of interest.
In practice, if you have someone working on your farm, living on your farm, using your equipment, who has set hours of work, is not held financially responsible, and is not able to work for others, they are likely to be an employee, not a contractor.
What farmers need to do:
ProcessWorx recommends farms review their current contractor relationships with the criteria above to assess the possibility of misclassification. For true contractors, ensure written contracts are signed and that the terms of the contract are followed in practice. Any changes should be documented in writing to ensure the agreement remains up to date. Employee relevant terms like penalties, overtime, and leave should not be included in agreements for contractors.
If you need assistance reviewing your contractor relationships or have other questions, please contact the ProcessWorx HR consultants on (08) 9316 9896. Our friendly expert team will be happy to help you.
Originally Written for Farm Weekly Magazine