Legal 101 with Sprintlaw – Contractor Vs Employee: What's The Difference And Which Is Best For Your NDIS Business?

There’s a lot to think about when you start your small business as an NDIS provider. You’ll need to consider matters like certification, registration and marketing in order to establish your business as a reputable NDIS provider. However, one of the most important choices you’ll make as the owner of an NDIS business will be in regards to the staff you hire.

Specifically, whether you’ll be hiring contractors or employees.

There’s a big difference between a contractor and an employee. Both can provide great value to your business, however it’s important to decide which employment type is the better fit for your business.

Keep reading to learn more about contractors and employees. The better informed you are, the easier it is to make the right choice for your NDIS business.

Contractors Vs Employees: What’s The Difference?

There’s no wrong choice when it comes to contractors and employees. However, it’s important to make the right decision for your business. The key to this is in understanding the fundamental differences between a contractor and an employee.

At first glance, a contractor and an employee can both look pretty similar. Afterall, they both work for the same business and may even conduct the same kind of work. However, their employment conditions are not the same.

Here’s a breakdown of the key differences between a contractor and an employee:

A contractor

● Is employed by another company or works for themselves – they don’t work directly for the business, but rather, as an external employee
● Does not get paid superannuation, awards, leave or other entitlements
● Is employed for a specific time period or until a particular task in complete
● Brings their own work equipment
● Has more independence regarding their work and aren’t constantly directed by an employer
● Has the ability to have a sub-contractor working for them and sharing their workload
● Bares the entire risk and responsibility of their job

An Employee

● Is hired by their workplace as an internal employee
● Is entitled to superannuation, awards, leave an other entitlements
● Is a full-time or part-time employee of the business they work for
● Has work equipment provided to them by their employer
● Performs tasks under frequent direction of their employer
● Cannot hire a subcontractor and are responsible for their workload alone
● Has an employer who is largely responsible for them

The above is a general list, identifying some of the most common differences between a contractor and an employee. We’ve written more about the difference between an employee and a contractor – check it out to learn more.

Keep in mind, not every point listed needs to apply for someone to qualify as either an employee or a contractor. Let’s take a look at how this may play out in an example.

As an employer, you cannot hold the same expectations from a contractor as you do for your employees and vice versa. A key element in eliminating the confusion is having well-drafted contracts with your staff.

For employees, you’ll need an Employment Agreement that outlines their rights and responsibilities. When you hire Contractors, you’ll need to get a Contractor Agreement in place.

Differentiating between the two is critical as you don’t want to get caught treating your contractors as employees. This is known as sham contracting and is an illegal practice in Australia.

What Is Sham Contracting?

Essentially, sham contracting is when an employer hires someone as a contractor, however their work conditions look much like an employee without the benefits of one.

One of the advantages of being a contractor is that you have a bit more autonomy than an internal employee. However, contractors don’t necessarily get the perks of superannuation, annual leave, and other awards or entitlements that a permanent employee would have.

When an employer engages in sham contracting, they exercise the same control over their contractors as they would an internal employee, while skipping out on providing the rights of an internal employee.

Sham contracting can lead to serious legal consequences, not to mention a loss of your NDIS business’s good reputation. It’s best to talk to an Employment Law expert and get some professional guidance when hiring employees or contractors so you can be sure you’re in the clear.

I’m Thinking Of Hiring Contractors, What Legal Considerations Do I Need To Be Aware Of?

Aside from sham contracting, there’s a number of other laws you need to be aware of when hiring a contractor to work for your NDIS business. For starters, you’ll still need to provide them with a safe working environment, just like any other employee.

Safe Work Australia determines the standard for all workers. As a business owner, you’re required to provide an environment that doesn’t harm any of your staff physically or psychologically. Taking reasonable steps to be cautious and avoid any potential incidents is essential. Having a well thought out and clearly written Workplace Policy as well as Staff Handbooks can help achieve this. These documents often make it easier to communicate the rules and boundaries that are in place for the wellbeing of all staff members, which can go a long way in keeping order.

As we noted above, it’s highly recommended that you have a Contractor Agreement in place with any contractors you may hire for your NDIS business. The Independent Contractors Act 2006 (ICA) is in place to provide a review for contractors who believe their contracts contain unfair terms. As an employer, you want to avoid this situation altogether. The best way to do this is by making sure your contractor agreement is fair and follows the necessary regulations.

Understanding what laws apply and when they apply can be confusing – which is why it’s always best to seek the help of a legal expert. They can make sure your contractor agreement is well within the bounds of the law and help avoid unnecessary headaches down the line.

Are There Any Legal Considerations When Hiring Employees?

When you hire employees to work internally within your NDIS business, then your legal obligations are somewhat different. However, what remains the same is the need for a safe working environment for all employees. As such, it’s highly recommended that you take the time to learn your obligations under Safe Work Australia and get the necessary policies and handbooks drafted for your staff. Talking to an expert in Regulatory Compliance can help you gain a better understanding of the do’s and don’t of being a legally compliant employer.

When you become someone’s employer, there’s a number of obligations you’ll need to fulfill towards your staff. These include:

● Sick leave
● Annual leave
● Superannuation
● Modern awards
● Minimum wage
● Record keeping
● Overtime
● Workplace flexibility
● Ending employment
● Taxes
● Redundancy

This isn’t an exhaustive list and most of it is typically covered in an Employment Agreement. A number of factors are likely to add to this list and determine the extent of your responsibilities. As such, it’s important to have a chat with a legal expert as they can provide advice that is specific to your situation – we don’t recommend only having a general overview when it comes to your legal responsibilities as an employer. Even the most well intentioned employers make mistakes, which can lead to some serious legal penalties.

An employee is also likely to have greater access within the NDIS business, depending on the nature of their work. This can also apply to contractors, so it is a good idea to ensure you’ve got any confidentiality matters sorted before you hire anyone. Adding confidentiality clauses or ensuring your staff have signed Non-Disclosure Agreements is a good way to secure the privacy and integrity of your NDIS business.

Making The Decision: Should I Go With A Contractor Or An Employee?

There’s no hard and fast rule that says you must choose between hiring employees and contractors. It’s perfectly reasonable and acceptable to have both employees and contractors working for your NDIS business. It can be better to determine what employment type is best for the particular task the employee or contractor is being hired for.

Let’s say, you are understaffed and need to find a few people to fill in some positions until you can find permanent staff. In this case, hiring contractors would be a great way to go. However, if you want someone that can stay on permanently that works closely under your guidance, then an employee is likely to be a better fit. Eitherway, both types of workers can be found on Hirey.

It can be overwhelming to make these decisions alone. Luckily, you don’t have to. If you’re feeling stuck, reach out to our legal experts and they’d be happy to have a chat and provide some light on your situation.

Key Takeaways

There are both advantages and disadvantages of hiring either a contractor or employee. It’s important to properly assess every factor and make the choice that will better suit your NDIS business’s needs. To summarise what we’ve discussed:

● Choosing between hiring contractors and employees is a pretty important decision for NDIS business owners.
● Contractors and employees have fundamental differences in employment conditions.
● Distinguishing between contractors and employees is essential to avoid sham contracting, which is illegal in Australia.
● Legal considerations for hiring contractors include providing a safe working environment and having a fair contractor agreement.
● Legal obligations when hiring employees involve ensuring a safe workplace, addressing leave entitlements, superannuation, awards and more.
● The decision to hire contractors or employees depends on the nature of the tasks and the business’s needs, with both options being acceptable.
● Consulting legal experts can provide guidance in making informed decisions for your NDIS business and help you avoid potential legal penalties.

What’s Next?

NDIS providers can both survive and thrive with the right kind of planning, guidance and legal protection. Help your business grow by joining a Sprintlaw Membership to get unlimited access to an expert team of online business lawyers, and discounts on fixed-fee legal services.

If you would like a consultation on contractors vs employees, you can also reach out to the Sprintlaw team at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.

About Sprintlaw

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Disclaimer: All content contained in this publication is intended to provide general information in summary form on legal and other topics, current at the time of first publication. The content does not constitute legal (or other) advice and should not be relied upon as such. You should obtain specific legal or other professional advice before relying on any content contained in this publication.