What is an independent contractor?

What is the difference between an independent contractor and an employee?

Independent contractors must be "in business" and truly independent

We used to say that an employee provides a contract of service while a contractors provides a contract for service. However, the line has been blurred with contractors where some perform just about all their work for one Principal for a long period of time. Now the difference between a person who is an employee and one who is an independent contractor, is an employee is in a relationship of personal service. An independent contractor is a business person.

Independent contractors being "in business" is critical

Many people who are appointed as contractors are not actually in business for themselves. They are dependent on a principal rather than being actually independent. It has been estimated that between about 25% and 35% of all supposed independent contractors are in fact dependent on one Principal.

The true independence test is that they can demonstrate they are business for themselves.

Utilising independent contractors

If you are considering restructuring your business and thinking about transferring the work to contractors rather than use your own employees then you should consider the whole relationship.

Entities that expect exclusivity of appointed contractors need to consider all the things that that make it up. It may be great to avoid paying their Workers Compensation, Superannuation and Payroll tax. You pay them an hourly fee for work performed. You leave it to them to sort out their own Tax issues but you supervise all their work, you tell them what hours they have to work and even supply materials or even their equipment. Are you really appointing a truly independent contractor ? This is an important question to consider.

So how do we know if they are truly Independent?

The High Court's made a particularly relevant decision in Hollis v Vabu Pty Limited(2001) 207 CLR 21which involved bike couriers who were engaged by a courier company as contractors. When considering whether the bike couriers were in fact contractors or not, the High Court looked at the whole of the relationship between them and the Principal appointing them and concluded that the bike couriers were really employees.

The bike couriers had some features of an independent contractor, but not all of them. Essentially the bike couriers were not operating a business. The Court concluded, as one of the judges stated, that merely labelling a dog as a duck does not convert the dog into another creature.

Factors to consider when appointing contractors

The lessons learnt in Hollisv Vabu, were the following factors in determining what is an independent contractor. They are:

  • Who actually owns the business?
  • Who controls the operation or work performed?
  • Who owns the premises or office space?
  • Who owns the tools?
  • Who does the contractor provide duties to?
  • Does the independent contractor take the risk of profit or loss?
  • Is there a creation of goodwill?
  •  How is the independent contractor paid?

Latest News

Robert Cooper - one of 100 faces of small business

This week it was announced as part of Small Business Week,  that Robert has been named one of the 100 faces of small business for a State Government promotion on the great value that small businesses play in the State of Queensland.

You can see Robert's entry here:

It is the third accolade for CPR Insurance Services in a month and after seven and a half years in business is a real pep up for the company.

For Robert, it is the culmination of many years experience, becoming well qualified, experiencing the highs and lows of a career and always wanting to contribute to his community. Sometimes, these things just come together and you receive recognition for your efforts.

Robert says that there is no doubt that starting your own business is a huge challenge, but with the right research and planning, the right people around you and a good set of values that you apply to the vision of the company, you have a very good chance of making it all succeed.

Robert says he is lucky. He has a strong supportive Wife, Mandy, who is also part of the business, along with efficient and hard working staff such as Julia McLauchlan and Aidan Harmer who are building up their own skills in a learning environment. 

However, the most important and most supportive people for CPR Insurance Services are our clients who have stuck by us and supported us over the past seven years. Our focus remains on providing the best possible service we can and always acting in their best interests. To all our clients, we say thank you!

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CPR Insurance wins Brokerage of the year

CPR Insurance Services picked up the award for the Best Brokerage (1-5 staff) in Australia, last Friday Night (4th May 2018) at the Insurance Business Magazine Awards held at the Westin in Sydney.

Judging came from various parts of the industry. It is a great honour to be recognised for our hard work and particular Business values we follow. A full list of winners is listed here.

Success comes from having great staff, and we thank Aidan Harmer and Julia McLauchlan as important support staff for helping us win such an award.

CPR Insurance has been in operation for more than 7 years now and is only successful because of the wonderful support from our staff, insurers and most importantly, our fantastic clients who put their faith and trust into our company to be their Risk Advisers and Brokers. 

Thank you to all.

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