Q&A: Contractor or employee for WA workers | Circle Green Community Legal

This information resource is for private sector employees in Western Australia. It is general information only and not intended to be a substitute for legal advice. By using the information on this page, you agree to our full disclaimer.

There are two systems of employment law in Western Australia: a state system and a national system. While this information resource is suitable for both state system employees and national system employees, it will help you to know which system of employment law you are covered by. If you are unsure, please see our publication: Q&A: State or national for WA employees.

This resource was last reviewed on 26 August 2024.

Quick Summary

Employees and contractors are both workers, but they do not have the same rights. There are a lot of rights and entitlements that only employees have. There are also many legal claims that you can only make if you are an employee.

Sometimes, people are told that they are contractors, but they are actually employees. If you have been incorrectly labelled a contractor, then you may be able to take legal action and be paid for the rights and extra entitlements that you may have missed out on.

The test for figuring out if you are an employee or contractor is quite complicated. It might be that you can only figure out which one you are more likely to be, and depending on your issue, you may need legal advice.

If you are told when to work and how to work, you are paid by the hour and you are provided with all your equipment, then you are probably an employee. If you can choose when you work and how you work, you provide an invoice when you have finished a job and you provide your own equipment, then you are probably a contractor.

Q&As

Why is it important to know whether I am an employee or an independent contractor?

How do I know if I am an employee or an independent contractor?

The method for figuring out whether you are an employee, or an independent contractor will depend on whether you fall under the national system or state system. If you are unsure what system you fall under, please see our publication: “Q&A: State or national for WA employees”. For the purposes of figuring out what system you are under when you have been told that you are a contractor, please regard the person/organisation that you work for as the “employer”.

Also note that this is just a guide, and only a court or commission can give you a definite answer on whether you are an employee or contractor.

National system

The national system laws provides some guidance on how to figure out whether you are an employee or contractor. It is important to look at the day to day working relationship when considering whether someone is an employee or contractor. This includes considering your daily duties, responsibilities, and how much freedom you have over the work you do, and how you do it.

For example, there may be factors that lean more towards being an employee, rather than being a contractor (e.g wearing a uniform may be a factor that indicates someone is more likely to be an employee).

Below is a table of factors that may indicate whether someone is more likely to be an employee or contractor. The legal name for this test is the “multi-factor” test. It’s not necessarily about counting how many factors you have in favour of employee or contractor, because some factors may be more important or have more weight than others. Think about whether overall, with these factors in mind, you are more likely to be an employee or contractor.

Indication of Independent Contractor	Indication of Employee
You are paid for completing a task	You are paid based on time worked, usually in the form of salary or wages
You have a high level of discretion over when and how work is done – e.g. sets own hours of work	Employer directs how work is to be performed, and when and where.
You are able to advertise your services to the public at large and to work for more than one entity	You usually work for one entity, i.e. the employer
You bear the commercial risk of loss or profit in relation to work (e.g. risk of loss caused by poor workmanship or negligence)	The business bears the commercial risk and responsibility for any loss caused by your poor workmanship or negligence, rather than you
You supply and maintain your own tools and equipment	You are provided the majority of equipment and materials for the work; any use of your own equipment or materials is compensated by reimbursement or allowance
You don’t have any leave entitlements under the contract	You receive annual leave, sick leave and long service leave or a casual loading. You may receive other benefits under an applicable award
You have unlimited power to delegate work to others	You cannot delegate to non-employees although may be able to delegate some duties to fellow employees

State system

The laws in the state system are less clear about how to figure out whether someone is an employee or contractor. This is because the approach can change depending on what Judges have decided in cases. For a long time, the multi-factor test (as outlined above) was used and whether someone was an employee or contractor was largely dependent on what their work relationship was like in practice.

However, more recent cases have held that where there is a written contract, you should assess whether someone is an employee or contractor based off what is written in the contract, rather than what the actual relationship is like when you are working.

The multi-factor test can still be used as a guide when looking at what rights or obligations are written into the contract, and whether they weigh in favour of being an employee or contractor. However, because the law is unsettled in this area, you should seek legal advice if you are unsure of what to do.

I am more likely to be an employee. What rights do I have?

I am more likely to be an independent contractor. What do I have to be paid and how am I taxed?

Unfortunately, we do not provide information or advice in relation to taxation issues.

We are also limited in the information that we can provide on the rights of independent contractors, because many of these rights fall outside the scope of employment law.

However, it’s important to know that the Fair Work Act, although it applies mainly to employees, also has rights for contractors.

If you are working for an incorporated, commercial organisation, you are probably covered by the Fair Work Act. If you are an individual person (unincorporated) working for a sole trader (also an unincorporated, individual person), you probably aren’t covered by the Fair Work Act. For more information on the application of the Fair Work Act, see our publication “Q&A: State or national for WA employees”.

If you are covered by the Fair Work Act, and you entered into the contract after 25 August 2024, you may be able to make a claim for an unfair contract term. For example, if you are being paid far less than you would be as an employee, you may be able to make an application for an order that you be paid the same.

There are some limits on this claim type:

You must be earning less than the contractor high income threshold.
You must be employed under a “services contract”.
You must be making a claim in relation to a “workplace relations matter” such as remuneration, hours of work or leave entitlements.

You can find more information on the website of the Fair Work Commission:

Independent contractor disputes about unfair contract terms | Fair Work Commission (fwc.gov.au)

This information summarises rights under the Fair Work Act, however it is not a comprehensive overview of the rights of contractors. For example, you may have rights under the Independent Contractors Act 2006.

For further information and to seek legal advice, you may wish to review the links below:

https://www.smallbusiness.wa.gov.au/contact-us

https://engage.curtin.edu.au/partnerships/business-industry/john-curtin-law-clinic/

https://www.lawsocietywa.asn.au/find-a-lawyer/

I have been told that I am an independent contractor but I think I am an employee. What can I do?

If you have been told you are a contractor, but you understand that you are actually an employee, it’s likely that you haven’t been paid wages and entitlements that you should have received as an employee. These wages and entitlements include the minimum wage but might also include higher pay rates, allowances, penalties and other entitlements under an industrial award that applies to the industry you are in or the job you are doing.

To help you figure out what wages and entitlements you should have received, you can call the Fair Work Ombudsman (national system employees) or Wageline (state system employees). If you are unsure what system you are in, please see our publication Q&A: State or national system for WA employees.

The Fair Work Ombudsman or Wageline may be able to help you to recover unpaid wages and entitlements. If they can’t help, you may need to bring an action for your minimum entitlements in the Industrial Magistrates Court yourself. If you have not been paid your minimum entitlements you have 6 years to make a claim from the date the entitlement falls due.

For further information on making a claim in the Industrial Magistrates Court, see our publication Claim guide: Unpaid minimum entitlements for WA employees.

As well as any wages and entitlements you might be owed, your employer may have broken the law by making a “sham contract” with you.

What is “sham contracting”?

If your employer knows that you are likely to be an employee but is still calling you a contractor, then there might be a “sham contract” in place.

A sham contract will occur when an employer deliberately misrepresents that an employee is a contractor, so they can avoid having to pay minimum wage or meet other employee rights and entitlements.

However, the employer’s actions don’t have to be deliberate. If an employer should have known you are an employee and says you are a contractor, this might also be a sham contract, even if it’s a mistake and not a deliberate misrepresentation.

If you think your employer has engaged in sham contracting, you can make a complaint to the Fair Work Ombudsman (national system employees) or to Wageline (state system employees). You may also be able to make a claim yourself, however, if you can’t show any loss then the outcome might be limited to a penalty applied against your employer and you may receive no compensation. If you are making a claim for unpaid wages and entitlements, you may be able to add a sham contracting complaint to your claim.

For more information on how to make a claim for sham contracting, see our Claim Guides:

Protection of employee rights for state system employees

General protections (non-dismissal) for national system employees

My employer is trying to make me become an independent contractor. What can I do?

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