Your staff: Employees or private contractors?

A new article from SmartCompany has examined whether staff should be considered employees or private contractors, looking in particular at the case of Ferrac International. 

While it is usually clear whether there is an employee/employer relationship, there have been some cases where the nature of the agreement is difficult to discern. The issue has come up many times in front of the Administrative Appeals Tribunal, and lingering questions still remain.

According to a ruling from the ATO, key indicators may include:

• The degree of control that the 'employer' can exercise over the 'employee'.

• Whether the contract is for the purpose of achieving a specific result, ie. a contract for services.

• Whether the 'employee' is expected to personally perform the work.

Ferrac International

Ferrac International entered into an agreement with a company for the delivery of the company's baked goods, and engaged a number of drivers to make deliveries. According to the AAT, Ferrac International's drivers were common law "employees" of the company, not independent contractors as argued by Ferrac. The conclusion was based on a number of factors:

• The contractors were paid for their labour only;

• They did not own or lease their vehicles; and

• They did not have any control and did not delegate any the work.

Furthermore, the supermarkets with which Ferrac held the delivery contracts considered the drivers to be Ferrac's employees. They identified themselves as such, and wore uniforms containing Ferrac's name. The drivers did not carry on their own businesses, and Ferrac held the risk; for example, the company would pay for repairs if any of the vehicles broke down.

The result of the AAT classifying the drivers as employees was that Ferrac had to pay a tax liability of almost $150,000, plus penalties. This is because employers are required to deduct tax from salary and wages paid to employees, plus 9% compulsory super. However, this is not the case for independent contractors.

The case is best viewed as a reminder that the ATO takes a keen interest in this area, and it is up to employers to make sure that workers are properly classified as employees or contrators. 

You can read more about this topic at SmartCompany.

Related link: ACE Insurance Ltd v Trifunovski: Independent Contractor or Employee?

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