So, Are Your Contractors Really Employees?

Independent Contractor or Employee


To be or not to be …a Contractor!

William Shakespeare didn’t ask this but it seems to be a question getting asked within the High Court of Australia and the outcomes could effect you and your business.

So, Are Your Contractors Really Employees?

Two landmark cases before the High Court highlight the problem of identifying whether a worker is an independent contractor or employee for tax and superannuation purposes.

Businesses often assume that when they hire independent contractors that they’re not responsible for PAYG withholding, superannuation guarantee, payroll tax and workers compensation obligations.

Correctly classifying the employment relationship can be difficult, with significant penalties faced by businesses that get it wrong.

Two recent High Court Cases clarify the way the courts determine whether a worker is an employee or an independent contractor.

If it walks like a duck and quacks like a duck, it’s probably a duck, even if on paper, you call it a chicken.  The High Court confirmed that you must look at the totality of the relationship and use a ‘multifactorial approach’ when confirming a worker is an employee.

CFMMEU v Personnel Contracting | ZG Operations Australia v Jamse

The written contract outlining the terms that the parties entered into held great weight in the decision. If the contract was not a sham, nor in dispute then the terms could be relied on to outline the relationship.

But it also clarified you could not call a worker an independent contractor if in fact they could be an employee.

In this case, Personnel Contracting offered the labourer a role with the labour hire company. The labourer, a backpacker with some but limited experience on construction sites, signed an Administrative Services Agreement (ASA) which described him as a “self-employed contractor.”

Overturning a previous decision by the Full Federal Court, the High Court held that despite the contract stating the labourer was an independent contractor, under the terms of the contract, the labourer was required to work as directed by the company and its client.  In return, he was entitled to be paid for the work he performed and as such was an employee.

The second case, ZG Operations Australia v Jamse produced a different result.

Two truck drivers were employed by ZG Operations for nearly 40 years.

In the mid-1980’s, the company insisted that they had to purchase their trucks and enter into contracts to carry goods for the company.

The respondents agreed to the new arrangement and Mr Jamsek and Mr Whitby each set up a partnership with their spouses.

They purchased trucks, paid maintenance and operational costs, they invoiced for delivery services. The income from the work was declared as partnership income for tax purposes and split between each individual and their wife.

Overturning a previous decision in the Full Federal Court, the High Court held that the drivers were not employees of the company.

After 1985 or 1986, the contracting parties were the partnerships and the company.

This relationship was not an employment relationship.

In this case the fact that the workers owned and maintained significant assets that were used in carrying out the work carried a significant amount of weight.


More information can be found here from the ATO Website


Heaney Business Group

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