The nature of the employment and contract arrangements for locum pharmacists varies – they can be engaged as contractors by a pharmacy, as short-term employees of the pharmacy, or as employees of a labour hire agency.
However, determining a contractor or employee status requires consideration of numerous characteristics of the relationship. One of these is the superannuation arrangement in place for the individual.
Superannuation arrangements are different for employees and contractors.
Under the Superannuation Guarantee (SG) regulations an employer must make super contributions for all employees (for casuals, where earnings reach a certain threshold). The ATO uses the following definition for SG purpose:
Whether a person is an employee of another is a question of fact to be determined by examining the terms and circumstances of the contract. While the definition includes persons who at common law would be regarded as employees, it also extends to a person who works under a contract that is wholly or principally for the labour of the person.
Generally speaking, individuals are regarded as employees if they contract to provide their labour to enable the employer to achieve a result, and as contractors where they contract to achieve a result. The ATO ruling classes people as employees where they contracted their services through either a company, trust or a partnership.
The Independent contractor/employee test
The following checklist sets out the substance of the multi-factor test which the courts apply in determining contractor/employee status:
- Lawful authority to command
- Employee: Under a contract of service, the payer usually has the right to direct the way in which the work is done. Of course, where the nature of the work involves the professional skill or judgement of the worker, the degree of control over the manner of the performance is diminished. What is important is the lawful authority to command that rests with the payer.
- Contractor: The hallmark of a contract for services is that the contract is one for a given result. The contractor works to achieve the results in terms of the contract. The contractor works on her/his own account, i.e. a plumber.
- How the work is performed?
- Employee: Tasks are performed at the request of the employer. The worker is said to be working in the business of the payer.
- Contractor: An independent contractor enters into a contract for a specific tasks or series of tasks. The contractor maintains a high level of discretion and flexibility as to how the work is to be performed. However, the contract may contain precise terms as to materials used and methods of performance, and still be one for services.
- Employee: An employee bears little or no risk. An employee is not exposed to any commercial risk. This is borne by the employer. Further, the employer is generally responsible for any loss resulting from poor work.
- Contractor: An independent contractor stands to make a profit or loss on the task. She or he bears the commercial risk. The contractor bears the responsibility and liability for any poor work or injury sustained in the performance of the task. Generally a contractor would be expected to carry her/his own insurance policy.
- Place of performance
- Employee: A worker under contract of service will generally perform the tasks on the payer’s premises.
- Contractor: A contractor on the other hand will generally provide all their own assets and may work at a number of locations.
- Leave entitlements
- Employee: An employment contract will generally provide annual leave, long service leave, sick leave and other benefits and allowances.
- Contractor: Generally an independent contract would not contain leave provisions (although mere non payment does not simply make the contract one for services).
- Employee: An employee is generally paid an hourly rate, piece rates or award rates.
- Contractor: Payment to an independent contractor is based upon the performance of the contract.
- Employee: An employee is generally reimbursed for expenses incurred in the course of employment.
- Contractor: An independent contractor is responsible for their own expenses.
- Employee: An employee is generally recruited through an advertisement by the employer.
- Contractor: An independent contractor is likely to advertise their services to the public at large.
- Employee: An employer reserves the right to dismiss an employee at any time (subject to any state or federal laws).
- Contractor: An independent contractor is contracted to complete a set task. The payer may only terminate the contract without penalty where the worker has not fulfilled the conditions of the contract. The contract will usually contain terms dealing with defaults made by either party.
- Employee: An employee has no inherent right to delegate tasks to another. However, there may be a power to delegate some duties to other employees.
- Contractor: An independent contractor may delegate all or some of the tasks to another person and may employ other persons.
- Employee: Plant and equipment is usually provided by the employer.
- Contractor: The contract usually specifies who is to provide the plant and equipment. This is usually the responsibility of the contractor.
- Scheduling of work
- Employee: An employer determines or controls the time frame within which the work is to be performed.
- Contractor: The work would be performed in accordance with agreed schedules and consistent with the obligations under the contract.
- Expectation of work
- Employee: An employee usually has an ongoing expectation of work.
- Contractor: A contractor is usually engaged for a specific task.
- Method of payment
- Employee: An employer usually pays an employee according to an award or employment agreement.
- Contractor: A contractor usually invoices the person who engages them for their services.
- Employee: An employee pays PAYG tax which the employer pays on behalf of the employee.
- Contractor: A contractor usually deals with her/his own tax.
- Relationship to the business
- Employee: An employee is usually an integral part of the employer’s business.
- Contractor: A contractor’s work is usually an accessory to the business.
- Ability accept other work
- Employee: A full-time employee is usually restricted to work for the one employer during normal business hours.
- Contractor: A contractor can accept as many contracts as they wish.
- Right to refuse work
- Employee: An employee does not have the right to continually refuse a reasonable task.
- Contractor: A contractor usually agrees to the tasks beforehand. The contract governs the tasks that must be performed.