The distinction between contractors, permanent employees and casual employees is a vital but often overlooked part of running a business. To ensure a business’ legal obligations towards employees are met, it is critical that team members are classified and documented correctly.
What is a permanent employee?
A permanent employee is usually engaged under an employment contract or Award as either part-time or full-time, and has a guaranteed number of working hours per week. Permanent employees are entitled to paid holiday and personal leave, which accrues from the commencement of employment.
All permanent employees, irrespective of whether they are working part-time or full-time, accrue leave on an annual basis. Permanent employees may also be entitled to other types of leave such as parental leave, defence forces volunteers leave, bereavement leave, or jury service leave if they meet certain conditions.
What is a casual employee?
A casual employee, on the other hand, does not have a minimum number of hours they are required to work per pay period. They have a more flexible working pattern and may refuse or accept extra work when offered by the employer.
According to Fair Work Australia, a casual employee:
- has no guaranteed hours of work
- usually works irregular hours
- doesn’t accrue paid sick or annual leave
- may have their employment terminated without notice, unless notice is required by a registered agreement, award or employment contract.
Casual employees receive a higher pay rate than equivalent full-time or part-time employees, called ‘casual loading’. The purpose of the loading is to offset the lack of benefits provided to permanent employees, such as paid annual leave.
What is a contractor?
Contractors are engaged by businesses to work independently under their own registered ABN, which will invoice the business for goods and services rendered. Contractors are generally responsible for their own expenses, such as equipment and insurance costs.
Whereas employees are required to follow directions and guidelines provided by the employer, contractors often work autonomously and adopt their own management or quality protocols. However, contractors bear the risk of their work, do not accrue leave, and are required to pay their own superannuation.
Employers should take care to properly categorise their workers. A sham contracting arrangement may occur where an employer treats an employment relationship as an independent contracting arrangement for the purpose of avoiding responsibility for employee entitlements. Such an arrangement may result in penalties from Fair Work Australia.
Please contact our team if you require any advice regarding the classification of your workers.