People: employees, contractors and the gap between them

The framework

Most private-sector employment in Australia sits under the Fair Work Act 2009 (Cth). Three layers apply at once:

• National Employment Standards — the statutory minimum entitlements (hours, leave, notice, redundancy, casual conversion, the information statements).
• Modern awards — industry or occupation-based instruments setting minimum rates, penalties, allowances and span of hours. Most employers are covered by at least one, and award coverage is not optional.
• The employment contract — which can improve on those minimums but never undercut them.

Paying a salary above the award does not automatically discharge award obligations. Where a salary is intended to absorb overtime and penalties, that needs to be documented as a properly drafted set-off arrangement and reconciled periodically.

Employee or contractor

Contractor arrangements are legitimate and common. The risk is characterisation. Where the written contract says "contractor" but the person works set hours, under direction, using your equipment, integrated into your business and unable to delegate, a court, the ATO or a state revenue office may treat them as an employee — or as a deemed employee for superannuation or payroll tax purposes even where they are a genuine contractor at general law.

The consequences are cumulative: unpaid award entitlements and leave, superannuation guarantee charge, payroll tax, workers compensation premiums, and civil penalties for sham contracting. Our note on contractor versus subcontractor goes deeper.

The documents every employer should have

• A written employment contract for every employee, identifying the applicable award and classification.
• A contractor services agreement, with genuine control, delegation and insurance provisions.
• Confidentiality and IP assignment terms — IP created by employees in the course of employment usually vests in the employer, but IP created by contractors generally does not without an express assignment.
• Post-employment restraints, drafted as cascading clauses with a realistic scope. Restraints are enforceable in Australia only to the extent reasonably necessary to protect a legitimate business interest.
• Workplace policies: work health and safety, discrimination and harassment (including the positive duty to eliminate sexual harassment), and acceptable use of technology.
• A record-keeping and payslip system that satisfies the Fair Work regulations. Poor records shift the evidentiary burden onto the employer in an underpayment claim.