Independent Sub-Contractor VS Employee

What is a sub-contract? The term sub-contract is short for the term subordinate level contract which is a lower-level contract for services between the service provider (trades person) and the principal (you) who generally has a higher-level contract for services with the main client. Commonly referred to in the industry as a “Subbie”, the principal is the Subbie’s client.

What are the main differences between an Independent Sub-Contract and Employment?

The Independent Sub-Contractor is genuinely running their own business and generally has more freedom to provide their professional services to other clients. They are engaged to use their professional skills to do the work without the principal’s (you) specific direction.

An Employment relationship which is when the Employer (you) engage a person directly as an Employee, and you have much more control over, how, when and where, the work is performed. You pay the Employee directly, withhold income tax, and are required to comply with minimum legal entitlements for wages and paid leave. You are able to provide the Employee with lawful and reasonable directions regarding their work performance and conduct. Generally, the Employee does not have the freedom to work for anyone else, particularly if this affects their work for you, is with a possible competitor, and you do not provide the Employee with permission to do so.

The main factors addressed at Law to enable the evidence to conclude the real nature of the relationship are:

1. The express terms of the contract which in other words is the clear wording in the contract that the parties have agreed to about the relationship.
2. Is the person engaged to do the work a sole trader business or the person has a company? Generally, a sole trader business will only have an Australian Business Number (ABN) and a Company will have both an ABN and an Australian Company Number (ACN). Another indicator for a Company is either Pty Ltd or Ltd at the end of the Company name.
3. The level of control you have over the person regarding when, where and how the work is performed.
4. Does the person provide their own equipment and tools to do the work?
5. Does the person have freedom to provide their professional services to other people and businesses?
6. Does the person submit GST invoices for the work performed?
7. Does the person have their own insurance for workers compensation, and public liability?
8. Does the person use your brand when doing the work? For example, wearing clothing with your business brand, and driving a motor vehicle provided by you with your business brand.
9. Is the person able to sub-contract the work further to another services provider? In other words, if the person is not available to perform the work, they are able to sub-contract with another person to perform the work, and they remain responsible for the work performed.

There can be additional factors considered, and generally, the importance of each factor above is weighted based on your specific circumstances.

Clear contract terms will benefit your business:

It is important to have clear contract terms when you are engaging with independent contractors, ensuring the contract wording is clear and easily understood by both parties regarding the nature of your commercial relationship.

An absence of a clear commercial contract for services, contract wording which is not clear, or is worded in a certain way, may create risk of the other party contesting they are an Employee, and have entitlements commonly associated with an employment relationship.

You may have long commercial relationships with a strong sense of trust, and may not feel the need to have a contract, which is understandable. A clear contract should be viewed as positive as it can demonstrate good faith by endeavouring to protect both parties and providing a sense of comfort if the unexpected occurs.

Any potential client or service provider who demonstrates a reluctance to engage in a commercial contract, or thinks it is not necessary, should be viewed with caution, and a possible red flag.

Please be assured the Association is here and ready to help you with:

Understanding the make up of your business and if you engage with Employees and/or Subbies.

Understanding the formal documentation you may have in place, and review this documentation to help you with any changes to reduce your risk, and benefit your business.

We have an Independent Contract for Services template available at a substantially discounted price for Members.

We have an Employment Contract template available at a substantially discounted price for Members.

Feel free to reach out to AWCINSW anytime for assistance in minimising business risks, allowing you to focus on what you do best — delivering exceptional service to your clients.

Jane Barnes
Executive Director – AWCINSW
0402201686 | 02 9891 6188