Independent Contractor vs Employee – The Risks, Benefits and Importance of Getting it Right

Independent Contractor vs Employee – The Risks, Benefits and Importance of Getting it Right

The industry has long assumed that most personal trainers are independent contracts. But is this correct? With the Fair Work Commission honing in on the difference between employees and independent contractors, it is now more important than ever to get it right.

Benefits of Being an Independent Contractor

For a business, there are a range of benefits to having workers categorised as independent contractors. The benefits revolve around streamlining administrative and payroll duties. The advantages include:

1. There being no minimum wage;
2. The worker being required to pay their own superannuation;
3. The worker not being entitled to leave, including annual leave, personal leave and long service leave;
4. The worker not being afforded some of the significant protections in the fair work legislation, including unfair dismissal; and
5. Depending on the terms of the agreement, the contracting arrangement may be terminated at short notice.

On the flip side, workers may prefer to be independent contracts as they have flexibility in working for a number of gyms. Their hourly rates may also be higher than minimum wage to make up for not being able to take leave.

Signs of an Independent Contractor

The most recent cases in the Commission apply the test of whether the business exercised control over the worker. More control = a higher likelihood that the worker is an employee.

The level of control is usually shown across a number of areas. Signs of being an independent contractor, will include:

1. Not having to wear a uniform;
2. Issuing an invoice to the business, rather than receiving a payslip;
3. Having a registered company structure or Australian Business Name;
4. Not being able to swap shifts with others;
5. Having an independent client base;
6. Working for a number of gyms;
7. Promoting their own business and services online, rather than the gym itself.

Is a Personal Trainer a Contractor?

Whether a personal trainer is a contractor or employee will depend on the circumstances. The written agreement they have with the gym will also be relevant. An example of a personal trainer being an employee is where the personal trainer is required to provide a personal training session to each new member of the gym and their own clients having to be members of the gym in order to attend sessions. A personal trainer is also likely to be an employee where they perform general duties for the gym, such as responding to emails and answering the reception phone.

In the fitness industry, arguably the most important factors will be the ability to train non-members, scheduling their own times for personal training sessions and invoicing the club.

Importance of Insurance

An independent contractor is generally held personally liable for their mistakes. On the other hand, an employee will generally be covered by their employer. This means that a personal trainer must have their own insurance unless they are an employee of the gym. If you are a trainer, make sure you are confident in your classification as a contractor or employee and check whether the insurance policy adequately covers you.

Getting it Wrong

As a gym, if you incorrectly classify a personal trainer as a contractor rather than an employee there are serious consequences. The biggest consequence will be on your cash flow in having to pay accrued entitlements, superannuation and increase all payments to meet the minimum wage. There are also significant penalties under the fair work legislation for disguising an employment relationship as an independent contracting arrangement. The maximum penalty for each contravention is a fine of $10,904.

If you are concerned about the categorisation of your workers, please contact one of our experienced employment lawyers at Taurus Legal Management on (03) 9481 2000 or at info@tauruslawyers.com.au.