At a glance: What is an employee?
Your community organisation needs to know when a worker is an employee, because different legal entitlements and obligations apply, depending on whether the law regards the worker as an 'employee', an 'independent contractor' or a 'volunteer'.
This page provides information about the following questions:
How do we tell if a worker is an employee?
The courts assess the entire relationship between the worker and the organisation by looking at the relationship as a whole.
The following factors are relevant:
- the degree of control the worker has over how work is performed
- the worker's hours of work
- whether work is expected to be ongoing
- who bears any financial risk for the work
- whether superannuation is paid
- who provides tools and equipment
- whether or not tax is deducted
- how the worker is paid, and
- whether the worker has leave entitlements.
Fairwork Australia has more information on these factors.
The Australian Tax Office's 'employee/contractor decision tool' can help you:
- decide whether a worker - or class of workers - is an employee or contractor for Commonwealth taxation and superannuation purposes
- view a summary report showing the information you have provided to the ATO
- view the decision the ATO has made based on that information, and
- view a summary of your Commonwealth taxation and superannuation obligations relating to the worker (or class of workers).
Business Victoria has a step by step test to work out whether you should hire or employ people.
What if we get it wrong and call an employee, a 'contractor' or a 'volunteer'?
If your organisation incorrectly classifies a worker, you might not provide them with their legal entitlements. There is a risk that legal claims could be made against your organisation, and you could be required to pay penalties or compensation.
If an employer refers to an employee as an independent contractor to avoid having to pay employee entitlements there are serious penalties under the Fair Work Act 2009. The Act prohibits ‘sham contracting arrangements' by making it an offence for organisations to:
- intentionally disguise a worker's employment or an offer of employment as an independent contracting arrangement
- dismiss or threaten to dismiss a worker for the sole or dominant purpose of re-engaging the worker as an independent contractor, or
- make a knowingly false statement for the purpose of persuading a worker to become an independent contractor.
Just calling a worker an ‘employee' does not mean they are one. If that question went to court, the fact that the parties thought the worker was an employee would only be one factor to be considered. The court would look beyond the label given to the substance of the work relationship as a whole. So make sure your organisation does too, and get legal advice if you're not sure.
PilchConnect Guide for Victorian community organisations: Employee, contractor or volunteer?
PilchConnect has produced a Guide which includes information on:
- the importance of correctly classifying different working relationships
- the basic legal differences between employees, independent contractors and volunteers, and
- an overview of some of the main legal obligations an organisation owes to its employees, independent contractors and volunteers.