There is a fine line between what constitutes a contractor and an employee, therefore employers act with caution when distinguishing between the two.

It is important to note that although a contract may be titled a ‘Contractor Agreement’, the nature of the relationship between the principal and the contractor may ultimately be an employer and employee relationship, giving rise to potentially significant amounts of leave entitlements.

Below are a few factors that should be taken into consideration when determining whether the relationship between the two parties is employer and employee or principal and contractor:

  • Autonomy;
  • Leave Entitlements;
  • Tax and Superannuation; and
  • Vicarious liability.


Contractors have a high level of control, discretion, and flexibility to provide the services that are required of them as they see fit. Whereas employees, have less discretion and are required to carry out their obligations under the directions of their employers and to a standard that is consistent among other employees performing the same duties and responsibilities.

Leave Entitlements

Employees are protected under the National Employment Standards (NES). Per the NES, employees are provided with minimum leave entitlements including but not limited to personal leave, annual leave, and long service leave. Contractors are not entitled to the same entitlements as employees as they do not fall under the NES.

Tax and Superannuation

Employers are responsible for paying superannuation payments to their employee’s nominated superannuation fund. Contractors are required to manage their own superannuation payments. Similarly, most employers will deduct tax contributions each pay cycle from their employee’s gross income. Contractors are required to manually pay their own tax contributions to the Australian Taxation Office.

Vicarious Liability

In the event of discrimination or harassment that occurs in the workplace or is connected to a person’s employment, employers can be held legally responsible for their employee’s actions. In

a principal and contractor relationship, the principal is not held vicariously liable for any negligent or tortious conduct of the contractor.

In addition to the above criteria taken into consideration by the Courts, there are further factors and circumstances which must be considered in determining the nature of the engagement.

To ensure that you are correctly classifying your contractors and to avoid exposing yourself to potential accrued leave entitlements, we advise you to seek advice from one of our experienced Employment lawyers at (02) 9964 0499.

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The articles on this website comprise legal general information and not legal advice. The general information presented here must not be relied upon without legal advice being sought. In the event that you wish to obtain legal advice on the contents of this general information you may do so by contacting our office or your existing solicitor.