HRM Report: Comparing Contracts of Service and Contracts for Services

This report delves into the critical distinctions between contracts of service and contracts for services within the realm of Human Resource Management (HRM). It defines each type of contract, highlighting that a contract of service establishes an employer-employee relationship, while a contract for services involves a client and a contractor. The report emphasizes the use of the 'control test' to determine employment status, examining factors such as equipment ownership, control over work processes, and decision-making authority. It also explores the legal implications for both contractors and casual workers, referencing Australian employment law and the Fair Work Act, detailing protections afforded to employees and the rights of continuous casual employees to request permanent positions. The report concludes by summarizing key differences and the importance of understanding these contractual arrangements for both employers and employees.

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Introduction.
Organizations hire people to perform different tasks or projects. The employees may
either enter into a contract of service which involves permanent employees or a contract of
services which includes contractors. They use a control test to determine if a person is employed
or self-employed. The law protects all employees both permanent and casual, and it also protects
the client from contractors by ensuring that the contractor delivers in good time and following
the specifications given by the client. The law also protects the contractors as well as casual
workers, and casual workers should have fair work, although they are not entitled to employment
benefits (Richards, 2015).
Differences between a contract of service and a contract for services.
Contract of service can be defined as a treaty between the employee and his/her employer
while a contract for services is the treaty between a contractor and a client where the contractor
is assigned with a project or an assignment. Other than the definitions, a contract of service and a
contract for services have a number of differences such as: in a deal of service, and the
employee does business on behalf of the employer while in a contract for services, the contractor
is responsible for all activities he/she carries out. In a deal of service (Jim et al. 2014).
An employee is protected by the employment act while a contractor is not. In a contract
for services, the contractor does not enjoy statutory benefits while an employee is entitled to
leave entitlements, limited working hours, overtime payments and allowances among many other
benefits. Persons involved in a contract of service are the employer and the employee while
persons engaged in a contract of services are the client and a contractor (Bradshaw, Millard &
Walden, 2011).

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How to apply a control test to work related to determine if a contract of employment exists.
A control test can be defined as the test used to determine if a person is an employee or
self-employed for purposes of assessing tax. Control is the power of managing, directing,
overseeing business assets, and affairs. Control test involves the capability of an organization to
regulate the behavior of a person. If generally there exists a contract of service, the organization
controls the management, how the work is to be done, and the amount. The relationship that
exists is an employer-employee relationship; on the other hand, a contract of service exists if an
individual responsible for a specific project or assignment has all the freedom to achieve the
desired outcome. The contractor controls everything at work and can also assign some tasks to
other persons; the relationship that exists in the contractor-client relationship (Hood, Hardy &
Simpson, 2016).
To differentiate between an employee and a contractor, organizations using the control
test look at a number of factors that include: the owner of the equipment being used for work, if
the person responsible for a specific task is owned all the tools for the job, the person is not an
employee. Employees are provided with all equipment by their employers. Another way to
determine if a person is an employee or not is the power of the person overwork, and if the
person is controlled on how to work, where and when to work, it is most likely that the person is
an employee and not a contractor. The other way to determine if a person is an employee or not
is if the individual has the power to person has the authority to make decisions on cost while
working to increase the profitability, that person is likely to be a contractor. Nature of work is
also another way to determine if a contract of employment exists or not, if an individual is

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expected to give reports to the client and has no control of the workplace, the person is an
employee (Witesman & Fernandez,2013).
How the law relates to contractors and casual workers.
The employment law in Australia protect employees who have entered in a contract of
service and not those in a contract for services. In order to differentiate between a contractor and
employee, a control test is carried out to determine the employment relationship (Underhill,
Groutsis, van den Broek, & Rimmer, 2018). The process of applying the test might be changed
by some regulatory schemes like safety and health legislation and FW act that protects
independent contractors (Stone, 2006). Differentiating between a casual and a permanent worker
is essential to determine if the employee is entitled so some specific benefits. According to FW
act, a casual worker is entitled to benefits if only he/she is a continuous casual worker (Moran,
2009). For a casual employee to be continuous, the employment should be systematic and
regular, and there are some laws that protect casual. There is also a fair-work-commission
(FWC) that protect the rights of workers by ensuring that the nature of work is fair to all
employees (Floyd, Steenson, Coulthard, Williams & Pickering, 2017).
Casual workers that have worked for more than twelve months are entitled to request for
a part-time or full-time permanent job where employers can only refuse for a good reason
(Dubal, 2017). The client does not pay taxes, Medicare, or social security for contractors, the
client cannot also withhold employment taxes and income taxes from contractors, and they,
therefore, have an obligation to pay their taxes. Independent contractors are also responsible for
completing the project assigned to them in good time and should meet all the specifications

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given by the client. The client only gives speculations, and the contractor decides on how to do it
(Murphy, 2019).
Conclusion.
In conclusion, there are several differences between a contract of service and a contract
for services the main being that a contract of service is a treaty between an employer and an
employee while a contract of services is a treaty between a client and a contractor. To determine
if there exists a contract of employment, organizations could use the control test. The control test
puts some factors into consideration and concludes if an individual is an employee or a
contractor. The law protects all employees in who is in a contract of services. FW protects
contractors and casual employees who are continuous casual employees of a particular
organization. Fair-work- commission also protects casual employees by ensuring they work
under favorable conditions (Rojo, Dell'Olio Gonzalo-Orden, & Ibeas, 2015).

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