Is my developer an employee?

- May 9, 2013 2 MIN READ

Things are progressing well at your start-up.  Despite not knowing how to code, you found a talented engineer who loves your idea.  Over a hand-shake deal and several cash payments, he’s been building your app for six months and there’s plenty more features to roll out.

He still does the odd job for other start-ups, but yours takes up 90% of his time – he even spends five days a week with you at your co-working space, which you pay for.

Suddenly, he asks why you haven’t been paying him super (what the…!).

Why would he ask?

Well if he basically works for you i.e. you give him a place to work, supply his tools of trade, pay his expenses and direct his work activities, he could well be your ‘employee’, even without an employment contract.  Not only would you then need to pay him super, but provide him annual and sick leave, plus take tax out of his pay to send off to the tax office (amongst other things).

But we never agreed he would be an employee!

It doesn’t matter.  The important thing is the actual arrangement and how you behave, despite what you may or may not have agreed, whether in writing or not.

Most likely, you intended that he would work as an independent ‘contractor’ so that he deals with super, tax and all that stuff.  Where there’s nothing in writing, the difference can be a bit blury.

Here’s what the ATO looks at:

  • Control over work: do you have the right to direct how he performs his work or does he have the freedom in the way the work is done, subject to what’s in any agreement?

  • Ability to sub-contract/delegate: can he pay someone else to do the work?

  • Basis of payment: is he paid for time worked, by price per activity, by commission; or based on results according to a quote?

  • Equipment, tools & other assets: do you provide all or most of the equipment, tools and other assets to complete the work; or provide an allowance or reimburse the cost of the equipment he provides?

  • Commercial risks: who’s legally responsible for the work performed and liable for rectifying any defects?

  • Independence: is he operating independent of your start-up, working within and considered part of your start-up; or just performing services as per an agreement and free to accept or refuse additional work?

The ATO even has guidance for “IT” workers and a handy decision tool to help you figure this out.

So what should I do?

If you don’t want to employ someone, you want to engage them as a ‘contractor’.  To make sure you get it right, put it in writing.  A Contractor Agreement (AKA Services Agreement) will cover the key elements above, plus it will ensure that you own the code and the intellectual property he creates.

Now you’ll at least have written evidence of your working relationship.  Then it’s up to you to follow those terms because courts can still look at what you actually do, despite what you write.

Happy contracting!