Employee or Independent Contractor? Think of It Like Hiring a Tradesperson

With the Closing the Loopholes Act 2024, understanding the difference between an employee and an independent contractor has never been more crucial. Misclassifying a worker could leave you facing hefty fines, back-pay obligations, or worse. Let’s break down the key differences by comparing it to a simple scenario: hiring a tradesperson to do work in your home.

1. Who Controls the Work?

When you hire a plumber or electrician, you tell them what needs to be done, but they decide how to do it. You don’t oversee their every move. The same applies to an independent contractor in your business—they control the how, when, and where of their work.

However, under the Closing the Loopholes Act 2024, courts will apply a multi-factor test. While control is key, they will also look at the totality of the relationship—factors like how integrated the worker is into your business and how the contract is executed in practice are just as important.

2. Tools and Risk

Your plumber brings their own tools and bears the risk for any mistakes they make. If they need to fix a faulty pipe, that’s their responsibility. Similarly, a true independent contractor brings their own tools, manages their own risks, and covers their own expenses.

If your contractor isn’t taking on that level of risk or is relying on you to provide everything, they may be classified as an employee under the new laws.

3. Getting Paid for Results

When you hire a tradesperson, you don’t pay them by the hour like an employee. Instead, they get paid based on completing the job. The same should apply to independent contractors—they’re paid per project or for a specific outcome, not for clocking in and out.

That said, independent contractors can be paid hourly, but only when it’s linked to delivering a specific outcome or milestone, not for general, ongoing work like an employee.

4. Multiple Clients

Your plumber doesn’t work just for you—they likely have other clients they serve. An independent contractor should be free to work with multiple businesses at the same time, just like a tradesperson with different customers.

However, having multiple clients isn’t a definitive test. Even if a contractor works only for you, they could still be classified as independent, as long as they control how the work is done and operate as a separate business.

5. Autonomy Over Scheduling

A tradesperson decides when they can fit you into their schedule. They might give you a window, but ultimately, they control their time. Independent contractors should have this same level of autonomy—they set their hours and decide how best to complete the job.

If you’re dictating when your contractor works, it could signal an employee relationship.

6. Why This Matters More Than Ever

The Closing the Loopholes Act 2024 focuses on the totality of the relationship, not just what’s written in the contract. Misclassifying a worker could lead to back-pay claims for superannuation, sick leave, annual leave, and penalties. This could be devastating to a business, especially if the relationship is misjudged.

The Act also allows contractors earning below the high-income threshold to raise disputes over unfair contract terms with the Fair Work Commission, so businesses must be vigilant about classification.

Final Thoughts

Think of an independent contractor like a tradesperson—they come in, do the job, manage their own risks, and get paid for the result. If your contractor starts looking more like an employee (taking orders, using your tools, working set hours), you could be facing legal trouble under the new laws.