Forms of Contractual Relationships

A contract of service creates an employer – employee relationship which attracts employment conditions regulated by:

• Awards
• Certified (Enterprise Bargaining) Agreements or
• Common law

A contract for service establishes a principal – contractor relationship. People engaged under such terms are usually known as independent contractors.

The obligations of the parties to the contract vary depending on whether the person is an employee or an independent contractor. The legal distinctions between these two forms of contract and the clear identification of the employer is very important as it affects:

• who is responsible for the provision of workers’ compensation insurance;
• whether PAYG deductions must be made in accordance with the Income Tax Assessment Act and at what marginal rate (employee, ABN or no ABN);
• whether superannuation contributions are payable under the Superannuation Guarantee (Administration) Act;
• whether payroll tax is payable;
• the conditions of employment such as hours, rates of pay, entitlement to leave, etc;
• termination of employment, including responsibility for any subsequent claims of unfair dismissal; and
• loss or damage as a result of an individual’s negligence during the course of their employment.

It is clear that an employer – employee relationship (and hence the above responsibilities), does not apply between the University and a third party when the University contracts for the performance of work by persons engaged by a labour hire firm.

Whether an individual is a contractor or employee is less clear.