Engaging independent contractors can be a fabulous way to help you serve your clients, offering flexibility and specific expertise to meet the unique needs of your business. 

But are you certain your contractors are truly that? Or could they be deemed as employees under the law? 

It's a tricky distinction with significant legal and financial implications and this is a topic that has increasingly come into the spotlight in recent years. Just because an arrangement is labelled one way doesn't necessarily mean it holds legally.

Understanding Contractor Criteria

The law considers various factors to ascertain whether an arrangement is genuinely that of a contractor:

• Delegation: Can your contractor delegate their duties? For someone to be classified as a contractor, the possibility of delegation must exist, even if it's theoretical. 
• Do they use their own equipment? Genuinely independent contractors run their own businesses, using their unique set of skills and materials to provide a service to your business.
• ABN and insurance: Anyone who runs their own business must have their own ABN and insurance in place. Make sure you check this.
• Exclusivity: Does a sense of exclusivity penetrate your agreement? If so, your contactor might resemble an employee in the eyes of the law.
• Payment: Contractors typically issue invoices rather than being on your payroll. 

All of these elements must be crystal clear in a strongly tailored, independent contractor agreement that reflects your real-life arrangement. It’s important to note that getting the distinction between contractor and employee wrong can lead to significant consequences. 

Confusion with Superannuation Benefits

One particularly complex area is superannuation obligations. Under certain legislation, even genuine contractors might be eligible for superannuation benefits, meaning that if you’ve been treating an employee like a contractor, you might have to backpay all the superannuation benefits you’ve missed. For a small business, this has a huge impact on cash flow. 

Ultimately, as a business owner, understanding the distinction between contractors and employees is your responsibility. As I always say, prevention is better than cure so making sure you have the right agreements in place is the best way to protect your business and grant you peace of mind, saving you from potential pitfalls later on.

Above all, I strongly encourage you to seek specialist advice from your business lawyer or accountant to make sure you are meeting your legal obligations concerning employees and contractors. As I always say, prevention is better than cure. 

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