Insights from Ben Schefe, Director – Employment Law & Litigation, McCarthy Durie Lawyers
When it comes to managing people, clarity is everything. From setting expectations with staff to defining working relationships, employers who understand the legal landscape are better positioned to build productive, compliant, and sustainable teams.
Two of the most common areas where legal confusion arises are performance management and correctly classifying employees vs contractors. Both are critical to get right; not just to avoid risk, but to build a strong workplace foundation.
1. Performance Management Starts with Process
Managing underperformance isn’t about catching people out, it’s about creating the right structure to support improvement, protect the business, and ensure fairness for all involved.
Underperformance can include:
- Not meeting the duties of the role
- Disruptive or uncooperative behaviour
- Failure to follow policies or procedures
- Repeated negative impact on co-workers
A best-practice approach should include:
- Identifying and documenting the issue clearly
- Analysing the seriousness and duration of the behaviour
- Meeting with the employee (offering a support person if requested)
- Focusing on solutions, not blame
- Monitoring and reviewing progress regularly
Why it matters:
Courts and the Fair Work Commission consistently emphasise the importance of procedural fairness. Even when performance issues are valid, failure to follow a fair and thorough process has resulted in cases of reinstatement or compensation. Employers should always ensure clear communication, documentation, and opportunities to respond.
2. Employee or Contractor? Know the Difference
Engaging someone as a contractor does not automatically make them one in the eyes of the law. What matters is how the working relationship operates day-to-day.
Courts consider various indicators to determine whether a person is an employee or an independent contractor. These include:
| Indicator | Employee | Contractor |
| Direction & control | Works under the employer’s direction | Has control over how work is performed |
| Hours | Generally works set hours | Decides on own schedule |
| Financial risk | Bears no financial risk | Bears risk and provides its own insurance |
| Superannuation | Paid by employer | Manages own (unless otherwise entitled) |
| Tools & equipment | Supplied by the employer | Uses own |
| Tax | Employer deducts tax | Contractor handles their own tax/GST |
| Leave | Entitled to paid leave | Not entitled to paid leave |
Employers must also be aware of sham contracting, where a business misrepresents an employment relationship as an independent contract to avoid legal responsibilities. Under the Fair Work Act 2009 (Cth), this can lead to significant penalties — up to $19,800 per breach for individuals and $99,0000 per breach for companies with less than 15 employees.
Useful resources:
Final Word
Clear, fair and legally sound employment practices aren’t just about compliance; they’re a core part of building a strong, trusted business. Whether you’re hiring your first employee or reviewing your current workforce arrangements, it’s worth taking the time to get it right.
For more practical tools, resources and templates tailored for Redlands Coast employers, visit our dedicated support hub.
