Contractors

Farmers sometimes engage independent contractors for specialist tasks, such as silage or hay making. A contractor and an employee have different legal rights and obligations, so the distinction matters.

This page covers situations where a person's status - employee or contractor - may be unclear. It does not cover tradespeople and professionals such as electricians, vets and artificial insemination technicians, whose arrangements are usually straightforward.

The common law test

Calling someone an independent contractor does not remove employment obligations if, in reality, they are an employee. The true nature of the relationship - not the label - decides which laws apply.

The law in this area changed in 2022 and again in 2024:

  • before 2022, courts used the 'totality' or 'multifactorial' test, weighing the overall relationship and how the work was performed,
  • in 2022, High Court decisions emphasised the terms of a comprehensive written contract, even where parts were not followed in practice, and
  • from August 2024, the totality test again applies.

Key factors under the totality test:

  • Control: contractors decide how and when work is done; employees usually cannot.
  • Delegation: contractors can delegate work to others; employees must perform it themselves.
  • Business structure: contractors run their own business and carry commercial risk; employees work within the employer's business.
  • Payment: contractors are usually paid a fixed fee for a result, not an hourly wage for labour.
  • Business indicators: contractors may hold invoicing systems, terms of trade, insurance, debt-collection processes and business records.

Other relevant indicators

Though not decisive alone, these include:

  • payment by invoice rather than wages,
  • responsibility for their own tax,
  • holding an Australian Business Number (ABN), and
  • paying for their own accident and public liability insurance.

Further questions to consider:

  • do they work for multiple clients or advertise publicly,
  • can they make a profit or loss from the work,
  • was the price commercially negotiated,
  • do they carry the risk of poor performance,
  • do they use their own tools and equipment, and
  • are they engaged to deliver a specific result, then leave once it is achieved.

No single factor decides the question, and not every factor applies in each case. A comprehensive written agreement is essential.

For the full criteria, see understanding independent contractors (Fair Work Ombudsman).

Other laws that still apply

Industrial laws for employees do not apply to common law independent contractors. Some other state and federal laws do apply, and treat the contractor as a 'deemed' employee.

Workers compensation

Workers compensation laws may apply to a contractor regardless of common law status. Liability depends on how 'worker' is defined in the relevant state or territory, and this definition varies. If a contractor meets that definition, the farm business must pay workers compensation.

Superannuation

Under federal superannuation guarantee laws, employers must contribute super for all employees. Determining whether a person is legally an employee or a contractor for super purposes is essential, and penalties for non-compliance are severe. Seek professional advice if unsure. See the ATO guidance on the difference between employees and independent contractors.

Unfair contracts

The federal Independent Contractors Act 2006 applies where at least one party trades through a company, and the contract is at least partly for the performance of work. The Federal Court can review, vary or set aside an unfair contract. In assessing fairness, the court weighs the parties' bargaining power, any undue pressure or unfair tactics, and whether the contractor is paid less than an employee doing the same work.

Watch out

Sham contracting is illegal and carries significant penalties. It is an offence to: dismiss an employee in order to re-engage them as a contractor, misrepresent an employment relationship as independent contracting, or make a false statement to push someone into a contracting arrangement.

Seek advice from a legal adviser or your state farming organisation if a worker's status is in doubt. Take a draft Contract for Services on the Dairy Farm to the adviser. 

Common questions

Is my worker an employee or an independent contractor?

The true nature of the working relationship decides, not the label used. Courts apply the 'totality' test, weighing control, delegation, business structure, payment and other indicators.

What is the totality test?

The totality test weighs the whole relationship: who controls how and when work is done, whether the person can delegate, whether they run their own business and carry risk, and how they are paid. No single factor is decisive. 

Do independent contractors get superannuation or workers compensation?

Sometimes. Some state and federal laws 'deem' a contractor to be an employee, so superannuation or workers compensation can still apply. It depends on how 'worker' is defined and the nature of the work. 

What is sham contracting?

Sham contracting is illegally treating an employee as a contractor. It is an offence to dismiss an employee to re-engage them as a contractor, misrepresent employment as contracting, or make a false statement to push someone into a contract. Penalties are significant.