Independent contractors

Farmers may choose to engage an independent contractor when they have a specific job which needs to be done by a person with a particular skill, for instance, silage making or hay making.

It is important to be able to distinguish between an independent contractor and an employee as the law imposes different rights and obligations on those who engage independent contractors and those who engage employees.

At the same time, it is important to distinguish between a person who comes to work for you as an independent contractor and the various professionals and trades people who come to your property (e.g. electricians, vets and AI technicians). This section does not deal with these people as the arrangements under which they provide a service to you are usually clear cut and well understood.

This section deals with the people who may be engaged on the farm where their status as an employee or contractor may be unclear.

The common law

Because some industrial laws about employment do not apply to independent contractors, some people think that if they call a person a contractor, they will be able to avoid these responsibilities. This is not the case. Calling a person an independent contractor when the true nature of their engagement is as an employee does not avoid these laws applying.

The laws about independent contractors changed in 2022 and changed again in 2024.

Prior to 2022 the Totality Test or the `multifactorial test’ was used to help to determine if a person was an independent contractor or an employee at common law.  This test looked at the conduct of the parties to the agreement and asked a number of questions related to the performance of the contract.

In 2022 the High Court considered the issue of independent contracting in two cases and the decisions placed emphasis on the terms of a comprehensive written contract rather than conduct after entering into the contract even if some of the obligations detailed in the contract were in practice not performed.

From August 2024 the multifactorial test or the totality test is again relevant to help decide if a person will be regarded as an independent contractor or an employee.

• Control- how much control does the principal have over the work done by the contractor? A Contractor will be able to control how and when work is done.
• Delegation- can the contractor delegate all or some of the work or do they have to do it personally? A contractor will usually have the right to delegate the work to another person or entity even though in practice this may not occur.
• Can it be said that the contractor is working in their own business or are they in reality working for the business of the principal? A contractor will be running their own business and be subject to commercial risk.
• Does the contract provide for payment by fixed fee related to outcome or achievement of a satisfactory result rather than a time-based pay rate? It would be unusual for a contractor to be paid by the hour for labour alone.
• Does the contractor have invoicing systems, standard terms of trade, insurance, debt collecting systems, appropriate financial records which businesses commonly use?

Other contract terms which may be relevant but not necessarily determinative are the following:

• Is the person paid by invoice not wages?
• Does the person pay their own tax?
• Does the person have an ABN?
• Does the person pay their own accident and public liability insurance

Note that these terms would not in themselves make a person an independent contractor if in reality, the person is not running their own business.

The following questions may also be relevant:

• Is the person doing similar work for other people?
• Does the person advertise their services to the public?
• Does the work lead to an ability to make a profit or is the work the same as an employee would do for wages?
• Was the contract price negotiated commercially?
• Does the person bear the risk for poor performance?
• Does the person use their own assets tools and equipment to do the work?
• Does the person benefit from goodwill?
• Has the person agreed to provide a particular outcome or result and when the result has been achieved will they leave?

Some of these questions may not be relevant in the particular case. 

It is important to remember that there is no single factor which will determine whether the relationship is one of employment or independent contracting and the existence of a comprehensive written agreement is essential.

Remember that calling the working relationship independent contracting when it is in reality, an employment relationship does not in itself make it an independent contract

For more on the criteria of whether a person qualifies as an independent contractor or an employee, visit understanding independent contractors

Contractor or Employee FAQ

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Other laws

Whilst industrial laws about employees do not apply to common law independent contractors, some other state and federal laws do apply, regardless of their status at common law. Under these laws, common law independent contractors are ‘deemed’ or taken to be employees and the laws apply to them as if they are employees.

Workers compensation

If the independent contractor you wish to engage falls within the definition of ‘worker’ under your state or territory legislation, you will have to pay workers compensation payments.

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Superannuation

The federal superannuation guarantee legislation requires all employers to make superannuation contributions, for all employees and it is therefore important to be clear about whether the person you have engaged is defined as an independent contractor or an employee for superannuation purposes.

For detailed information on superannuation and contractors go to the ATO website and this document:

https://www.ato.gov.au/Business/Employee-or-contractor/Difference-between-employees-and-contractors/

The penalties for breach of superannuation requirements are severe. Professional advice should be obtained where any doubts arise. Visit the ATO for more information.

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Unfair contracts laws

The federal Independent Contractors Act 2006 applies to all independent contractors if at least one party to the contract runs their business and trades through a company structure and the contract is at least in part, for the performance of work. The federal Independent Contractors legislation also applies in the territories.

These laws set up a process in the Federal Court to review contracts which can be varied or set aside if found to be unfair. In deciding whether a contract is unfair, the court will consider the relative bargaining strengths of the parties to the contract, any undue influence, pressure or unfair tactics which may have been used and whether the payment to the independent contractor is less than an employee doing the same work would have received. Read more about understanding independent contractors

It is important to seek advice from a legal adviser or your state farming organisation if you are in doubt about whether a worker is an independent contractor or an employee.

Take a draft Contract for Services on the Dairy Farm to your legal adviser.

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