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ICA fields frequent queries about the numbers of independent contractors in Australia. ICA has quoted figures---based on ABS data---which indicate that there are 1.9 million independent contractors in Australia. The Productivity Commission has quoted figures---based on the same ABS data---indicating 787,000.
The Explanatory Memorandum to the Independent Contractors Bill 2006 provides a very clear and useful discussion of the numbers and how they can be calculated. It also provides a summary of numbers by industry and occupation. It is reproduced here without comment.
From the Explanatory Memorandum to the Independent Contractors Bill 2006. The full text of the memorandum can be found here.
Who is an independent contractor?
An 'independent contractor' is a person who contracts to perform services for others without having the legal status of an employee. The term is generally used to refer to a person who is engaged by a principal, rather than an employer, on a labour only contract. Under such a contract, the principal pays the independent contractor a one-off flat rate. There are generally no legislatively prescribed minimum entitlements or other employee-style benefits and the independent contractor is responsible for a number of aspects of the relationship that would usually be the responsibility of an employer (for instance, remitting income tax to the Australian Tax Office and contributing to a superannuation fund). Independent contractors' work arrangements take a variety of forms, for example, they may have a direct relationship with another enterprise or work through an intermediary (such as a labour hire firm), and they may or may not employ staff.
The common law has traditionally maintained a distinction between 'employees' and 'independent contractors'. Employees are engaged under a contract of service (an employment contract), whereas independent contractors are engaged under a contract for services. Historically, independent contractors have been perceived as running their own business and working under commercial, not employment, contracts. In contrast, employees have been seen as subject to control and direction. The courts have adopted a multi-factor test to determine whether a person is an employee or independent contractor. No single issue concerning control, economic independence or the description of the relationship in a contract will be determinative, however, courts will place greater weight on some matters, in particular, on the right to control the manner in which the work is performed.
Numbers of independent contractors
Determining the precise number of independent contractors in Australia is difficult.
The Productivity Commission estimates that there were approximately 843,900 self-employed contractors in Australia in 1998, equating to 10.1 per cent of all employed persons. It has estimated that this number has dropped slightly to 739,500 (or 8.2 per cent of all employed) in 2001, and risen slightly to 787,600 (still 8.2 per cent of all employed) in 2004.
The Productivity Commission has based its estimates on ABS Forms of Employment Survey (FOES) data Ð however, this data is not ideal as it includes self-employed contractors in all five categories of workers that it covers:
- employees with paid leave;
- self-identified casuals;
- employees with no paid leave who do not identify as casuals;
- owner managers of incorporated enterprises; and
- owner managers of unincorporated enterprises.
Moreover, some questions asked in FOES 2001 were not asked in FOES 2004. The groups among self-employed contractors that cannot be identified in 2004 are:
- employees (excluding owner managers of incorporated enterprises) with paid leave;
- employees (excluding owner managers of unincorporated enterprises) with no paid leave who do not identify as casuals; and
- some owner managers of unincorporated enterprises.
The Productivity Commission has applied a number of tests and compared 2001 and 2004 data (which are not strictly comparable) to infer the growth of independent contractors between 2001 and 2004. They estimate a 6 per cent increase on 2001.
It is important to note that the Productivity Commission does not categorise owner managers who employ other people as self-employed contractors. Independent Contractors of Australia has used Productivity Commission and FOES 2004 data to claim that the share of independent contractors in total employment in Australia has grown from 16.4 per cent of total employment in 1978 to 19.9 per cent in 2004 (or 1.9 million). This estimate is based on the total number of owner managers in incorporated and unincorporated enterprises, and therefore includes owner managers with employees, which the Productivity Commission argues should not be included in the estimate.
Accordingly, estimates range from approximately 800,000 to 2 million independent contractors in 2004 (or from approximately 8 per cent to 20 per cent of all Australian employed persons).
Industry distribution
Independent contractors comprise a diverse group Ð they can be anyone from an IT or accounting professional to a factory worker, cleaner or fruit picker. Self-employment in the construction industry is common, especially in housing as opposed to commercial construction. The construction industry is sensitive to the economic cycle which means that the demand for labour fluctuates with the peaks and troughs of the cycle. In 1998, almost one quarter of self-employed contractors worked in this industry.
Computer services such as help desk services, hardware installation and system design and maintenance are often contracted out to skilled workers in Australia. This industry accounts for 19.7 per cent of all self-employed contractors in the workforce.
The most common type of independent contractors in the transport services industry is owner-drivers. Owner-drivers are workers who supply their own vehicle to deliver goods for a client. In 1998, 5.4 per cent of all self-employed contractors worked in the transport and storage industry.
There are several different types of contract workers in manufacturing, ranging from business-to business relationships (where the contractor supplies finished parts or components for the production process), to contractors whose input is not directly related to the finished product (for example, cleaners and maintenance), to the self-employed contractors who are paid according to their output and produce part, if not most, of the finished good. In 1998, the manufacturing industry accounted for 8.6 per cent of self-employed contractors.
Occupational distribution
Tradespersons and related workers are by far the largest group of self-employed contractors: 27 per cent of all self-employed contractors are from this occupation. Tradespersons and related workers account for only 11.9 per cent of all employees, a considerably lower proportion.
Professionals are the second largest group of all self-employed contractors at 18.3 per cent. The proportion of professionals who work as employees is similar to those who work as self-employed contractors (18.9 per cent).
The occupational categories of intermediate production and transport workers, and labourers make up 10.6 per cent each of the total amount of self-employed contractors in the Australian workforce. The proportion of employee labourers and related workers to all employees is also 10.6 per cent. The proportion of intermediate production and transport workers who work as employees is 9.6 per cent.
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