Businesses often hire people as independent contractors instead of employees. But getting this wrong can lead to serious consequences, including unfair dismissal claims, back payment of super and taxes and penalties for “sham contracting”.
In 2024, Australia updated the Fair Work Act to make it clearer how to tell the difference between an employee and a contractor. Under the law, it’s not enough to rely on what the contract says. Instead, authorities will look at how the working relationship actually operates in real life.
In simple terms: If someone looks and works like an employee, they may legally be an employee, no matter what the contract calls them.
Two Real Cases – Two Different Results
Case 1: A game testing company hired a woman as a contractor. When her contract ended, she claimed unfair dismissal. The Fair Work Commission decided she was actually an employee because the company controlled her work, she had to report to a supervisor and submit weekly reports, she had to use company systems, she couldn’t send someone else to do the work and she was paid a fixed monthly amount.
Result: She was deemed to be an employee. Her dismissal was ruled unfair and she was reinstated and paid compensation.
Case 2: A home care worker provided services through an online platform. She claimed she was an employee of the care company. The Commission decided she was not an employee because clients (not the company) controlled her hours and tasks, clients ended the arrangement, she invoiced for work done and she operated using an ABN and carried business risk.
Result: She could not bring an unfair dismissal claim.
When deciding if someone is an employee or contractor, the Commission may consider how much control the business has over the person, how the person is paid (regular salary vs invoices), who pays for equipment and expenses, who takes financial risk and whether there is an expectation of ongoing work. There is no single deciding factor—it’s the overall picture that matters.
Calling someone a contractor when they are really an employee is known as sham contracting. If authorities decide this has happened, businesses can face fines, penalties and back payment of wages and super.
Our firm advises businesses and workers on contractor and employment arrangements. For more information, contact Geoff Lloyd or Julie Burton.
