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What to consider when employing your first staff member


So your business has expanded and you are considering employing your first member of staff.  However, you are not sure whether to employee a full time, contract or even a casual worker.  Before you go ahead start recruiting,  here are some important legal issues to consider when hiring staff:

Contractor vs Employee

In law, there is what is called a ‘ control test’ which determines the manner in which people carry out their work and whether they are required to comply with what you ask them to do.     In addition, there are a number of additional factors that a court would determine to whether there is an ‘ employment relationship’ in place.

The common mistake made is that virtual or remote workers are not employees. This is not necessarily the case.  According to the law, any person that works under your supervision, works exclusively for you, has access to company benefits and does not have the complete freedom to decide upon their own working hours, is actually an employee. Therefore, you are responsible for paying any taxes or superannuation that is applicable.

It is important that you are clear on the main differences between contractors and employees when recruiting staff to your business.  These are as follows:

  • An employee cannot sub-contract out your work, while a contractor can.
  • Employee sign an ongoing contract while contractors often work on per-project base
  • Employees work at your office or retail space while contractors can carry on their tasks wherever they choose.
  • You pay taxes on behalf of your employees, but not for your contractors
  • Employees work under the supervision of someone, while contractors carry out their work independently
  • The working hours and the direction of the work of an employee are under your control, while contractors usually set their own rules
  • Employees are entitled to public and company benefits but contractors take care of their insurance arrangements themselves
  • You provide all the necessary tools, training and environment for an employee to carry out his or her work, while contractors are responsible for their own work setting
  • Your business is legally responsible for the work done by the employee and they carry no commercial risks, while the contractor carries legal responsibility for their actions

The other key area to remember is that an employee has rights that a contractor will not, this includes unfair dismissal. Unfair dismissal is when an employee is dismissed from their job in a harsh, unjust or unreasonable manner.  Small businesses have different rules for unfair dismissal. A small business is defined as any business with fewer than 15 employees. The Small Business Fair Dismissal Code came into operation on 1 July 2009 and it must be complied with by small business when dismissing an employee. It provides protection to small business when dismissing employees due to downturn in the business. However it should not be misused and the downturn must be genuine.

About the author:

Katherine new picKatherine Hawes is a Sydney based lawyer at New Age Legal Solutions who specialises in offering fixed fee and low cost legal advice to start up businesses.