THE DIFFERENCE BETWEEN
CONTRACTORS AND EMPLOYEES
What does this distinction mean for fitness professionals and
fitness businesses?
WORDS: LEON PONTE
t’s pretty difficult to run a fitness business without fitness
professionals. However, just as the best exercise program for
one client may not be the best for another, whether it is better
to use employees and/or independent contractors for the provision of
personal training (and other fitness services) will depend, in part, on your
particular business model.
It will also depend on whether they are employees or independent
contractors, at law.
For instance, rendering an invoice, having an ABN, calling
someone an independent contractor in an agreement, the fact that
others in the industry use independent contractors and a number of
other common misconceptions do not alone render an employee an
independent contractor. But does it really matter?
In two relatively recent cases, the Federal Circuit Court imposed
significant penalties on employers that were found to be in
contravention of the ‘sham contracting’ provisions of the Fair Work
Act 2009 (FWA) (e.g. misrepresenting an employee relationship as
an independent contracting arrangement). Back pay was required
to be made, and penalties were also imposed against directors of
the employer companies. While those cases did not involve a fitness
business, the issues in the cases may be just as applicable to the
fitness industry.
In this instalment of ‘Legally fit’, we therefore look at some
of the issues you should consider when determining whether to
engage someone as an employee or an independent contractor.
To read previous articles in this series search ‘Legally fit’ at
fitnessnetwork.com.au/resource-library.
I
Rights and obligations
Whether a fitness professional or other worker is an employee or
independent contractor will have an effect on a number of rights
and obligations of the parties, including in relation to employment
entitlements, taxation obligations, superannuation entitlements and
obligations and workers compensation. Some of the differences in the
rights of, and obligations for, employees and independent contractors
are set out in Table 1.
These rights and obligations have an impact on both the
fitness professional and the employer. For instance, if the fitness
professional is an independent contractor in his or her own name,
not only will they not have leave and other related employment
entitlements, they may also not be entitled to workers compensation
in the event of an injury. (Search ‘Legally fit business structure’ at
fitnessnetwork.com.au/resource-library for other considerations
32 | NETWORK SPRING 2015
when deciding what sort of structure should be used for your fitness
business.) However, the fitness professional may still have a right to
be paid superannuation, even if they are an independent contractor.
Sham contracting
A sham contracting arrangement is when an employer attempts to
disguise an employment relationship as an independent contracting
relationship to avoid providing employee entitlements.
The sham contracting provisions of the FWA provide that an
employer must not:
1. misrepresent an employee relationship as an independent
contracting arrangement; or
2. make a statement that the employer knows is false in order to
persuade or influence an employee to become an independent
contractor.
An employer must also not dismiss or threaten to dismiss an employee
in order to engage the employee as an independent contractor to
perform the same work the employee was previously performing.
Table 1: Rights and obligations:
employees and contractors
Employee
Independent contractor
Minimum wage
Entitlement/obligation
Y
N
Annual leave
* B