Farmers may choose to engage an independent contractor when they have a specific job which needs to be done by a person with a particular skill, for instance, silage making or hay making.
It is important to be able to distinguish between an independent contractor and an employee as the law imposes different rights and obligations on those who engage independent contractors and those who engage employees.
At the same time, it is important to distinguish between a person who comes to work for you as an independent contractor and the various professionals and trades people who come to your property (e.g. electricians, vets and AI technicians). This section does not deal with these people as the arrangements under which they provide a service to you are usually clear cut and well understood.
This section deals with the people who may be engaged on the farm where their status as an employee or contractor may be unclear.
The common law tests
Because industrial laws about employment do not apply to independent contractors, some people think that if they call a person a contractor they will be able to avoid these responsibilities. This is not the case. Calling a person an independent contractor when the true nature of their engagement is as an employee does not avoid these laws applying.
There are a number of questions which can be asked to help determine whether a person is an independent contractor at common law. The answers to the various questions are then weighed up to decide whether ‘on balance’ the total picture points to employment or independent contracting.
Download our contractor or employee fact sheet (questions to ask are on pg 2) - in some particular cases, some of these questions may not be relevant. If the answer to the majority of the question is:
- Yes - the relationship will more than likely be one of independent contracting
- No - the relationship will more than likely be an employment relationship and the person should be engaged as an employee under a common law employment contract or a workplace agreement
It's important to weigh up as many of the questions as are relevant to decide whether the person is doing the work as part of their own business or for the business of the person who engages them.
The following questions are also sometimes used to help to decide if a person is an independent contractor or an employee.
- Is the person paid on the basis of invoices not wages?
- Does the person pay their own tax?
- Does the person have an ABN?
- Does the person pay their own accident and public liability insurance
Be careful giving too much weight to these questions as they do not necessarily make a person an independent contractor if in reality, the person is not running their own business.
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Whilst industrial laws about employees do not apply to common law independent contractors, some other state and federal laws do apply, regardless of their status at common law. Under these laws, common law independent contractors are ‘deemed’ or taken to be employees and the laws apply to them as if they are employees.
||Workers compensation laws may apply to an independent contractor regardless of their status at common law. The responsibility for payment of workers compensation depends upon the definition of ‘worker’ in the relevant state or territory legislation. The definition of ‘worker’ is different in every state and territory - visit State Industrial Laws and understanding independent contractors
If the independent contractor you wish to engage falls within the definition of ‘worker’ under your state or territory legislation, you will have to pay workers compensation payments.
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The federal Superannuation Guarantee legislation deems contractors to be employees if:
- the person is paid wholly or principally for their labour and skills - this can apply to contracts that include the supply of materials and/or goods if labour is the main component;
- the person is required by the contract to perform the work personally and cannot delegate the task; and
- the person is not paid to produce a result
If the contractor meets this definition of employee, superannuation of the person’s base earnings (the labour component of the contract) must be paid to a complying superannuation fund at least every quarter.
If the contract is with a company, a trust or partnership it is not regarded as a contract for a person’s labour or skills and therefore the superannuation guarantee legislation will not apply to that contract.
The penalties for breach of superannuation requirements are severe. Professional advice should be obtained where any doubts arise. Visit the ATO for more information.
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Unfair contracts laws
The federal Independent Contractors Act applies to all independent contractors if at least one party to the contract runs their business and trades through a company structure and the contract is at least in part, for the performance of work. The federal Independent Contractors legislation also applies in the territories.
These laws set up a process in the federal Magistrates Court to review contracts which can be varied or set aside if found to be unfair. In deciding whether a contract is unfair, the court will consider the relative bargaining strengths of the parties to the contract, any undue influence, pressure or unfair tactics which may have been used and whether the payment to the independent contractor is less than an employee doing the same work would have received. Read more about understanding independent contractors
It is important to seek advice from a legal adviser or your state farming organisation if you are in doubt about whether a worker is an independent contractor or an employee.
||The federal industrial laws make it an offence to do any of the following and significant penalties apply:
- dismiss an employee for the purpose of engaging them as an independent contractor;
- represent an employment relationship as independent contracting; or
- make a false statement for the purpose of influencing or persuading an individual to enter into an independent contract