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Payment by invoice and ABN not confirmation of a contractor engagement

When engaging an individual as a contractor, it is essential that the nature of the engagement is that of a genuine contracting arrangement rather than that of an employment relationship.  There are a number of factors which may contribute to determining the difference between an employee and an independent contractor, however it is important to note that no single indicator will determine if a person is a contractor or an employee. Rather, each determination is based on the individual merits of the actual work arrangement in place and the Courts will always look at the totality of the relationship between the parties when determining the status of a person’s employment.

Although payment upon the provision of an invoice can be an indicator of a contracting relationship, it is not a sole determining factor. This was recently demonstrated in the case of Erin Shay v Christopher Shannon (2021) in which it was found that a worker was an employee, despite them having been engaged under an ABN and providing an invoice for payment. 

Following the lodgement of an adverse action claim, the employer raised a jurisdictional objection contending that the applicant had not been “dismissed” as she had been engaged as an independent contractor rather than an employee. The work performed by the applicant was described as being “hosting work”. The applicant was required to:

  • attend a venue, set up and host a “Pick a Box” game.  
  • visit different venues and work for approximately two hours each shift.  

There was no written contract in place between the parties, and the applicant would submit an invoice for the work performed under her ABN. It was noted by the Commission that the ABN had been set up by the applicant for the purposes of her personal business in which she performed in a band, rather than for providing a service for another party. 

In determining the nature of the relationship, the Commission held that when ascertaining whether a contractual relationship is one of employee or that of a contractor, there needs to be an examination that “extends beyond the label that has been attached to the relationship” by the parties. Rather the “real substances” of the relationship need to be considered.

In this case, it was noted that the following factors were present in the contractual relationship:

  • The applicant did not have practical control over the way in which the services were conducted. The respondent controlled when the work was to be performed, where the work was conducted and instructed on how the work was to be carried out;
  • The applicant did not supply any tools or equipment necessary for the work. While the applicant did use her vehicle for going to the workplace, this is the usual practice for employees when travelling to the designated workplace;
  • The applicant was not able to delegate the work;
  • The applicant was required to wear a uniform which consisted of a company branded shirt.
  • Tax was not deducted from payments made to the applicant which demonstrated the applicant was responsible for her own tax;
  • The provision of an ABN on an invoice was found not to weigh heavily in favour of the contractor relationship.  Each invoice was paid at an hourly rate rather than on the completion of the work being done;
  • Although payment for the work performed was made through the provision of invoices, the worker had not agreed to invoice for her work. Rather, she was told it was just the way things would be done.
  • The applicant did not need a specialist skill or profession to carry out the work

When considering each of the above factors together, the Commission found that the weight of each of the relevant factors pointed towards the existence of an employment relationship. As a result, the general protections application involving dismissal from employment was able to proceed.

The Fair Work Act 2009  prohibits “sham contracting” which refers to a situation where an employer disguises an employment relationship as an independent contracting relationship so as to avoid their employment obligations.  Where an employer is found to have breached the Act with regards to the sham contracting provisions, they may face penalties per contravention and be liable for the full range of employment obligations in respect of the employee. To minimise the risk to the business, it is important for employers to ensure that they correctly engage employees and independent contractors.

For assistance with ensuring you are meeting your obligations please contact us at [email protected] or 1300 720 004.

Information in HR Advice Online guides and blog posts is meant purely for educational discussion of human resources issues. It contains only general information about human resources matters and due to factors such as government legislation changes, may not be up-to-date at the time of reading. It is not legal advice and should not be treated as such.

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