Employee
A software engineer, Ahn, works for a large tech business. He designs, develops, tests and installs software programs. Ahn and the tech business have a comprehensive written contract in place governing their relationship.
Independent contractor
A software engineer, Sara, enters into a contract with a retail business to design, develop, test and install a new software program.
See the differences in their worker characteristics:
- Control over the work
- Integration
- Ability to delegate or subcontract the work
- Basis of payment
- Equipment, tools and other assets
- Commercial risks
Control over the work
Ahn
Under the contract:
- the business allocates work to Ahn and tells him the completion due date
- Ahn must complete the work according to the business's established protocols, guidelines and quality standards.
Employee characteristic – the business has control over the work.
Sara
The contract states the new software program needs to:
- be operational within 6 months
- complete specific software releases by set dates
- meet the retail business's requirements and specifications.
Sara is able to determine how the work is completed.
Sara can choose whether she undertakes future projects for the retail business.
Independent contractor characteristic – Sara has freedom in the way the work is done, subject to the specific terms in the contract.
Integration
Ahn
Ahn undertakes a core function of the tech business, being the design, development, testing and installation of software programs.
The business is contractually required to provide Ahn with business cards bearing its name and logo. Ahn is to provide these to customers as is appropriate.
Ahn is contractually required to use the signature block developed by the business in email correspondence, which includes the business name and logo.
Employee characteristic – Ahn is integrated into the business and is held out as an emanation of the business; he is not operating independently of the business.
Sara
Software development and installation is not a core function of the retail business. Sara is not provided with business cards and is not contractually required in her electronic communications with third parties to use a signature block provided by the retail business.
Sara has her own website which promotes her services. She has another project to do after the contract with the retail business is completed.
Independent contractor characteristic – Sara is operating her own business independently of the retail business, she is not integrated in that business.
Ability to delegate or subcontract the work
Ahn
Ahn is required to complete tasks as assigned to him by the business. If Ahn is running late in meeting a project deadline, he may be able to organise other software engineers who work for the business to undertake aspects of his work, depending on their workloads. The business pays the other software engineers.
Employee characteristic – Ahn cannot delegate or subcontract the work.
Sara
The contract does not stipulate Sara must personally complete the work and focuses on the result to build and install software. Sara can pay someone else to complete the work.
Independent contractor characteristic – Sara can delegate or subcontract the work.
Basis of payment
Ahn
As Ahn has recently completed his degree, the business has agreed contractually to pay him a higher annual salary. They pay Ahn fortnightly for the agreed standard hours he works plus any agreed overtime.
Employee characteristic – Ahn is paid for the time worked.
Sara
Sara quoted a price to design, develop, test and install the new software program. Sara will be paid progress payments upon specific stages of the project being satisfactorily completed.
Independent contractor characteristic – Sara is paid for a specific result based on the quote she provided.
Equipment, tools and other assets
Ahn
Ahn uses the computer equipment and software contractually provided by the business. On occasion, as agreed with the business, Ahn will work from home using his laptop to write the end-user documentation and operational procedures.
Employee characteristic – the business provides the majority of the equipment and assets required to complete the work.
Sara
Sara uses her own computer equipment and software, as is required under the contract. At designated stages of the project, Sara will also use the retail business's computers for short periods of time.
Independent contractor characteristic – Sara provides the majority of the equipment and assets required to complete the work.
Commercial risks
Ahn
If there are faults in the work, or it is not completed on time, Ahn is not personally liable under the contract. The business would need to pay to correct the problem.
Employee characteristic – Ahn takes no commercial risks.
Sara
If the software program does not meet the retail business's agreed requirements or does not perform to specification, Sara is contractually required to correct the problem at her own expense.
Independent contractor characteristic – Sara takes commercial risks.