The ride sharing app Uber, along with other similar apps within the ‘gig economy’, have caused debate as to whether their workers are engaged as employees or independent contractors. A recent investigation by the Fair Work Ombudsman regarding ride sharing app Uber has confirmed that their workers are independent contractors which has continued to flame this debate. So what is the difference between an employee and an independent contractor, and why is it important to distinguish between the two?
The main difference is that an employee is engaged for set hours with an expectation of ongoing work, and during that time must perform the work that their employer demands them to. An independent contractor is engaged by the ‘employer’ (or more appropriately, the ‘principal’) to perform a set task, and it is up to the contractor as to whether they accept that task and how they perform it.
Other typical features of independent contractor arrangements are as follows:-
• They have a high level of control in how the task is performed;
• They can delegate the work so that it is performed by others;
• They use their own tools and equipment;
• They can work for more than one ‘employer’ at any given time;
• They perform the work at their own risk (and therefore need their own insurance coverage);
• They do not have income tax deducted from their contract payments, but must account to the ATO directly for tax and GST;
• They are not paid superannuation; and
• They do not accrue entitlements such as annual leave or personal leave.
There is no fixed criteria though and it is not uncommon for a genuine independent contractor to lack some of the above features.
Unfortunately some employers will engage in sham contracting – where a person who is objectively an employee is engaged as an independent contractor to avoid having to pay employee entitlements or to reduce the person’s workplace rights. It is essential to note that just because a person signs a document that states that they are an independent contractor does not mean that they are actually an independent contractor. The totality of the engagement has to be examined. It is not in either party’s interest to entertain a sham contracting arrangement.
This post is general information only. It is not a substitute for legal advice from a lawyer. If you have a legal issue, you should always contact your lawyer to obtain advice that is relevant to your circumstances.