80/20 rule. What is the difference between and employee and a contractor
The 80/20 rule is a much discussed component of the Industrial Relations Legislation. This is the first in a number of vodcasts designed to assist independent contractors to safely navigate the the river of regulations and taxations.
Charlie:
Today we'll be looking at the difference between and independent contractor and an employee.
We've come into Restaurant & Catering Queensland to talk with Ken Law a bit more about the subject. He's going to fill in some basics for us.
So, Ken what exactly is the difference between an independent contractor and an employee.
Ken:
The difference between an independent contractor and an employee gets really down to the legal responsibility that applies to both of those type of people.
There is one responsibility that directs to the independent contractor in terms of what he needs to do to be included in that status.
The second responsibility is the difference between how the employer supervisor the independent contractor and a normal employee.
The employee is covered by general terms and conditions of employment where an independent contractor is subject to his own control test, he pays his own taxation, has his own ABN, and invoices, and so on.
It is clear that there is a difference in the legal responsibility and the right to control.
Charlie:
The legislation discusses a control test, what tests do contractors need to meet to identify as a contractor or as an employee?
Ken:
When they want to apply the control test to their duties as an independent contractor there are probably 12 or 13 maybe up to 15 different things that they should be looking at to try to achieve the majority of those results.
I'll name just a few:
(1) Whether the Person has an ABN;
(2) In relation to the amount of control that the employer has in terms of the supervising of their work;
(3) Does the independent contractor pay his own taxation;
(4) Does the independent contractor pay his own superannuation;
(5) Does the independent contractor have his own professional liability;
and maybe on other thing is:
(6) Does the independent contractor provide his own tools.
All those things, and there are a number of other elements that should be taken into consideration to clearly identify the difference between an independent contractor and an employee.
There is a case that's become reasonably predominate called the Vabu Case. It's about some bicycle couriers where the high court eventually made a decision that the bicycle couriers where actually employees and where not independent contractors. And that's basically the main precedent that we use in industrial relations these days to separate the difference between an employee and an independent contractor.
Charlie:
As an example, what would happen if I had a company structure and contracted myself out at an hourly rate, through invoice added GST and worked for 5 different businesses as a waiter?
Ken:
That wouldn't be a problem as long as you knew exactly what was happening. If the employer was prepared to recognise you as such, prepared to accept your invoices, to work in say XYZ Cafe for 7 hours a week were you provide an invoice and pay your own taxation, there is generally little control over your services, you are a professional and you just come in and do the job then you go to your next employer and do the same process you would be close to becoming a truly independent contractor. But again it still gets down to how much control the employer has over you but generally speaking if the employer agrees to let you invoice them for the work you carry out in that Restaurant or Cafe or Catering organisation on a specific day on a specific time well that's fine you're starting to fall in the true definition of it.
Charlie:
What do my employers need to know about contracting?
Ken:
The employers need to know and be able to understand the difference. They should contact an association like Restaurant and Catering Queensland. I'm the industrial relations manager and we have a department that specialises in industrial relations issues. Now, if there seems to be a question about whether the difference between an independent contractor and an employee, before they go down that track they should speak to the association. But generally speaking if they cover what's required in the control test the majority of items you nbever going to proably going to cover everything in the control test. If you can cover the vast majority of them you would become a truely independent contractor.
Charlie:
What are some of the steps that contractors should look at today to rethink their business model and the way they conduct their business affairs?
Ken:
Well they need to look at the level of control that their principal will have over them. That is one of the main things. They need to insure when it comes to providing their own tools for example, a chef needs to provide his knives and cloths and all that sort of stuff they need to take into account.....
Charlie:
So, they need to be self sufficient?
Ken:
They need to be fully self sufficient. They need to come into a workplace and do he job. In my association it doesn't encourage to many independent contractors but we now it happens and we understand that, that's fine. But, really there are more independent contractors in the areas of construction and transport than hospitality. But they are becoming more prevalent. We understand from our stats probably 15% of some of the catering businesses are using independent contractors.
Charlie:
If employers have any further questions, where should they go?
Ken:
If they have any further questions they can ring Restaurant and Catering Queensland. We have an office here in Brisbane, and we also have an office on the Gold Coast.
Now if anybody has a question they can ring up either one of those offices, they'll be put onto myself as the industrial relations manager or my offsider Paula and we will answer any questions they have.
But again they should be a member of our association and we encourage everybody to be a member of our association.
Charlie:
Thank you very much for your time Ken, thanks for letting us come in today. And if anybody has any questions, you can go straight below the vodcast and there's all the details you'll need there.
Thanks guys, stay tuned.