Hiring globally? Discover key employment law changes across 20+ countries happening in 2025 to ensure your team remains compliant.
Download the GuideThe Independent Contractor Act 2006 promotes the freedom to enter into genuine independent contracting relationships and minimises the limits on the usage of independent contractors.
However, the use of independent contractors will be limited where it is a sham arrangement under the Fair Work Act 2009 (FW Act). Likewise, the law allows a certain level of scrutiny and redress in circumstances where the independent contract is, in fact, an unfair contract and makes provision for remedies for unfair contracts.
While previously there was no limitation to fixed-term contracts, in 2023, the Secure Jobs, Better Pay Amendment introduced a civil penalty for employing an employee on a fixed-term employment contract that:
The main distinction stipulated by common law between employees and independent contractors is that an employee is someone who serves their employer in the employer’s business while a contractor is someone who carries on a trade or business of their own.
A person considered an employee usually falls under these fundamental characteristics:
The level and degree of control exercised by one party over the other is the most significant factor affecting the characterisation of a relationship. Control refers to things such as supervision and direction given as to how work is performed and includes the authority to control work (as opposed to actual control). Generally, the greater the level and degree of control exercised by one party over the other, the more likely the relationship is to be characterised as an employment relationship.
Rights, benefits and taxation between employees and independent contractors in Australia are very distinct. For instance, it is the employer’s responsibility to deduct and remit employee’s taxes from wages, whereas independent contractors are responsible for filing taxes themselves. Moreover, employees pay income tax, whereas contractors pay self-employed tax and can claim a much wider range of deductions with regard to their expenses.
Under the National Employment Standards and the FW Act generally, employees are entitled to the following benefits:
In contrast, true independent contractors are not entitled to the benefits mentioned above.
Workers’ compensation is covered by State and Territory laws and entitles employees to claim benefits for job-related injuries. Some independent contractors are covered for workers’ compensation in some states and in specific circumstances. However, not all contractors are entitled to claim workers’ compensation, and it will depend on the relevant state legislation. All employees, however, are covered by workers’ compensation legislation and entitled to its benefits.
Employers are vicariously liable for the actions of their employees performed in the course of employment. However, an employer is not vicariously liable for any actions committed by an independent contractor in the course of performing work for the employer.
Benefits that both employees and contractors benefit from include:
When it comes to intellectual property (IP), the characterisation of a person’s employment status may determine the beneficial ownership of the IP created by a worker. Copyright in an original work is ordinarily owned by the author of that original work.
However, copyright legislation provides an exception to this rule, allowing an employer of an author the right to own the copyright subsisting in their original work provided that:
Misrepresenting employment contracts as independent contractor arrangements can result in penalties of up to $63,000 for corporations and $12,600 for individuals knowingly involved in the contravention (such as a director or relevant manager).
In addition, companies will be responsible for back-paying the unpaid employee entitlements and the liabilities arising from non-compliance with statutory obligations plus interest, backdated to the date their contract of employment is deemed to have commenced, on the following:
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