Working out if your worker is an employee or contractor
To determine whether your worker is an employee or contractor, you need to look at the whole working arrangement and examine the specific terms and conditions under which the work is performed.
There are six factors you need to consider:
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There is no single factor that will be conclusive in determining whether the worker is an employee or contractor. You need to look at the whole working arrangement and consider each of these six factors.
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Ability to sub-contract/delegate
This factor is about whether the agreement or contract gives the worker the right to pay another person to do the work instead of them.
The agreement or contract your business has with the worker can be written or oral.
Worker cannot sub-contract/delegate the work
This is a characteristic of an employee.
A worker cannot sub-contract/delegate the work if either:
- the contract requires them to personally perform the work
- where the worker cannot do the work, they can organise for another person to do it, but your business pays the other person - this is substitution, not delegation.
Example
A commercial cleaning business has a contract to clean several small office buildings. The business has several cleaners who perform the cleaning work, including Ann and Ben.
Ann cannot do her shift and organises Ben to cover her shift. The business pays Ben for his extra cleaning shift.
As Ann only organised for Ben to complete her shift and did not pay him, she has not sub-contracted/delegated the work.
Worker can sub-contract/delegate the work
This is a characteristic of a contractor.
A worker can sub-contract/delegate the work if they are contractually not required to perform the work personally and can pay another person to do the work.
Example
A remedial massage therapist, Con, has a contract with an aged care facility to provide massage therapy to their residents.
The written agreement between Con and the aged care facility specifies:
- Con does not need to personally perform the work
- any suitably qualified massage therapist who has a current police clearance and the appropriate insurance can do the work.
Con is unwell and cannot work for a week. For that week:
- Con organises for his colleague (who runs a massage business) to cover his work
- the aged care facility still pays Con as outlined in the contracted agreement
- Con pays his colleague who has completed the work.
As Con was contractually not required to perform the work personally and could pay another person to do the work, he was able to sub-contract/delegate the work.
Basis of payment
This factor looks at the basis of the amount you agree to pay the worker.
Set amount per period
This is a characteristic of an employee.
You pay your worker a set amount per period if they are paid:
- a set amount such as an award rate, annual salary or an hourly or weekly rate (which is paid regularly, for example weekly or monthly)
- for the time they work.
Example
A supermarket trolley collection business provides trolley collection services for several small supermarkets in the local area. The business has several trolley collectors who collect the trolleys and return them to the respective supermarkets.
The trolley collectors are paid:
- an hourly rate (which is paid weekly)
- for the rostered shifts they work each week.
The trolley collectors are paid on a set amount per period basis as they are paid a regular, set amount for the time they work.
Price per item or activity
This is a characteristic of an employee.
Price per item or activity can also be called 'piece' or 'piece-work' rates.
You pay your worker a price per item or activity if they are paid:
- a specific amount for each item or activity they produce (for example, number of research interviews conducted, quantity of fruit picked or amount of sales successfully completed)
- for the number of items or activities they produce during a defined time period (for example, daily, weekly or monthly).
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Being paid on a commission basis is considered a price per item or activity.
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Example
A business has a team of telemarketers who sell their products and services. The telemarketers are paid:
- a specific amount per successful sale they make
- for the number of successful sales they produce during their rostered shifts each week.
The telemarketers are paid on a price per item or activity basis as they are paid a specific amount for each item they produce and for the number of items they produce during a defined time period.
Quoted price for an agreed or pre-determined result
This is a characteristic of a contractor.
You pay your worker a quoted price for an agreed or pre-determined result if all the following apply:
- the basis for the worker's job is to complete a specific task or project
- the worker provides a quote for the specific task or project (a component of the quoted amount could be worked out on the basis of the time taken to complete the task or project)
- you pay the worker the quoted amount only when they complete the agreed or pre-determined result of that task or project - that is, the achievement of the result is what entitles the worker to be paid.
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Sometimes progress payments may be paid once the worker has satisfactorily completed specific stages of the task or project.
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Example
A retail business needs to have the windows of their commercial premises cleaned on a monthly basis. A window cleaner, Dana, provides a quote for the job. Based on this quote the retail business enters into a contract with Dana to complete the work.
Each month Dana cleans the windows and submits an invoice to the retail business.
If the windows are cleaned to the required standard, the retail business will then pay Dana the amount she quoted. It does not matter whether it takes the Dana one hour or four hours to complete the work to the required standard, she will only be paid the amount she quoted.
Dana is paid for a quoted price for an agreed or pre-determined result as all of the following apply:
- the basis for her job is to complete a specific task (cleaning the retail business's windows)
- Dana provided a quote to clean the windows
- the retail business paid Dana the quoted amount only when she finished cleaning the windows to the required standard (completing the cleaning of the windows is what entitled Dana to be paid).
Equipment, tools and other assets
This factor is about who is responsible for providing the equipment, tools and other assets (such as heavy machinery or motor vehicles) needed to perform the work.
When considering this factor do not include any:
- equipment, tools and other assets which are of incidental use and therefore not strictly needed to perform the work (for example, a hammer used by a real estate agent to put up a 'for sale' sign)
- motor vehicles which are exclusively used for travelling to and from work.
Your business is responsible for providing the equipment, tools and other assets
This is a characteristic of an employee.
Your business is considered responsible for providing the equipment, tools and other assets if either your:
- business provides all or most of the equipment, tools and other assets needed to perform the work
- worker provides all or most of the equipment, tools and other assets needed to perform the work, but your business provides the worker with an allowance or reimburses them for the cost of the equipment, tools and other assets.
Example
Henry works at a golf club as a greenkeeper. He is responsible for the upkeep of the golf course greens, tees, fairways, rough and surrounds and general landscaping maintenance.
Henry brings along a few inexpensive hand tools of his own which he prefers using. The golf club provides all the other equipment, tools and assets to complete the work, including:
- greens mower
- tractor
- slasher
- spreader
- line trimmer.
Although Henry provides some tools, the golf club is considered responsible for providing the equipment, tools or other assets as they provide the majority of the equipment, tools and assets needed to perform the work.
The worker is responsible for providing the equipment, tools and other assets
This is a characteristic of a contractor.
The worker is considered responsible for providing the equipment, tools and other assets if they both:
- provide all or most of the equipment, tools and other assets needed to perform the work
- do not receive an allowance or reimbursement for the cost of this equipment, tools and other assets.
Example
Jeff is a garden maintenance worker who has a contract with a business to maintain their lawns and gardens on a fortnightly basis.
Jeff provides all his own equipment and tools to complete the job including a lawnmower, line trimmer, blower vac, hedge trimmer and garden hand tools. He also has his own vehicle and trailer to transport the equipment and tools to the business's premises.
Each fortnight when the lawns and gardens are maintained to the agreed standard, the business will pay Jeff the amount specified in the contract (they do not provide any other payments to Jeff).
Jeff is considered to be responsible for providing the equipment, tools and other assets as he:
- has provided all his own equipment, tools and vehicle to complete the job
- does not receive an allowance or reimbursement from the business.
Commercial risks
This factor is about whether the worker bears the legal risk and is liable for rectifying any defect in the work performed at their own expense.
Worker does not take commercial risks
This is a characteristic of an employee.
The worker does not take commercial risks if your business:
- bears the legal risk for the work and is responsible for defects in the work performed by the worker
- has to rectify any defect or pay to have the defect rectified.
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If your worker rectifies a defect in their work, but your business pays the worker for the time taken (and any materials required) to rectify this defect, the worker is not considered to have taken a commercial risk.
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Example
A commercial cleaning business has a contract to clean several small office buildings. The business has several cleaners who perform the cleaning work.
One of the cleaners, Brayden, accidently spills bleach on the foyer carpet in one of the buildings. He attempts to minimise the damage, but the carpet is ruined.
Under the contract, the business is liable for the damage and has to pay for the carpet to be replaced. While Brayden receives a reprimand from the business, he is not required to pay for the damage he caused.
Brayden does not take commercial risks as he is not responsible for his work and the business has to pay to have the defect in the work rectified.
Worker takes commercial risks
This is a characteristic of a contractor.
The worker takes commercial risks if:
- the worker bears the legal risk for the work and is responsible for defects in their work
- the worker has to rectify any defect (including incurring the cost of any materials required) or pay to have the defect rectified
- your business does not have to pay the worker for the time taken or any materials required to rectify any defect.
Example
Robert is a pest controller who has been contracted to carry out an annual pest spray for a business. Robert completes the pest spray (which treats cockroaches, spiders, fleas, ants and silverfish) and guarantees the pests will not return for 12 months.
Two months after the pest spray was completed, some of the business's employees complain about finding cockroaches in the staff lunchroom.
As Robert guaranteed the work, the business contacts Robert and asks him to fix the problem. The business is not required to pay Robert for the return visit or the cost of the spray to eradicate the cockroaches.
Robert takes commercial risks as he bears the legal risk for his work and rectification is at his own expense.
Control over work
This factor is about whether your business controls the way the work is done, or whether the worker can decide the way the work is done (subject to any terms and conditions in the contract or agreement).
Your business controls the way the work is done
This is a characteristic of an employee.
Your business controls the way the work is done if your business has the right to direct:
- what work the worker performs
- where the work is done
- how the worker carries out the work
- when the worker completes the work (for example, your business sets the worker's hours).
Example
A telecommunication business hires a call centre worker to answer inbound calls in their call centre.
The business has a computer system which automatically routes phone calls to call centre workers based on their knowledge skill set. The call centre worker must answer each phone call according the business's procedures and scripting.
The call centre worker has five shifts each week which the business rosters.
The business controls the way the work is done as they direct what, where, how and when the work is done.
The worker can decide the way the work is done
This is a characteristic of a contractor.
The worker can decide the way the work is done if the worker is free to exercise their discretion in completing the work (subject to the terms and conditions in any contract or agreement).
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A business has the right to specify how the contracted services are to be performed. However, such control must be specified in the terms and conditions of the contract or agreement, otherwise the worker is free to exercise their own discretion.
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Example
A large domestic house builder uses several stylists who create personalised interior solutions for their display homes.
Each stylist is assigned a job to fully fit out and decorate one display home. They liaise with the architect to understand the styling and furnishing needs specific to the intended purchasers of that house. The stylist creates the design and can choose their own suppliers.
The stylists determine how best to complete each job within the agreed budget and timeframe the builder has specified. Each stylist can decide the way the work is done as they are free to exercise their discretion in completing the work.
Independence
This factor is about whether the worker is operating independently from your business.
Worker is not operating independently from your business
This is a characteristic of an employee.
The worker is considered to be not operating independently from your business if they work within and are considered part of your business. That is, there is only a single business being operated (your business).
Example
A hotel has room attendants who make up the hotel rooms (making beds, changing linen and towels, cleaning bathrooms, vacuuming and so on) and help guests with housekeeping requests.
The room attendants:
- need to wear a uniform which has the hotel's logo and a name badge
- were provided with training by the hotel in how their duties needed to be carried out to meet the hotel's standards
- make up the rooms and handle housekeeping requests in accordance with the hotel's procedures and standards
- work specific hours and as part of a team to ensure the rooms are made up before the hotel's check in time
- need to perform any duties reasonably asked of them (within their job description) by the hotel.
The room attendants are not operating independently from the hotel as they work within and are part of the hotel. That is, there is only a single business being operated (that of the hotel).
Worker is operating independently from your business
This is a characteristic of a contractor.
The worker is operating independently from your business if they are operating their own business (independently from your business).
The worker performs services as specified in their contract or agreement and is free to accept or refuse additional work.
Example
A hotel offers a range of services to its guests, including in-room massage. The hotel enters into an agreement with a massage therapist to perform the massages for their guests.
The massage therapist is not required to wear the hotel's uniform.
If a guest requests a massage, the massage therapist visits the guest and performs the massage in their room using their own table, oils and so on.
The client may either pay the massage therapist directly or add the cost to their room account (in which case the hotel takes out a service fee before passing on the net amount to the massage therapist).
The hotel vetted the massage therapist before allowing them to conduct their business on their premises, but as specified in their agreement takes no responsibility for any negative outcome for the guest or massage therapist.
The massage therapist performs massages at other hotels and can also visit clients in their own homes. They are free to refuse work the hotel offers.
The massage therapist is operating independently from the hotel as the massage therapist:
- is operating their own business (independently from the hotel)
- performs services as specified in their agreement and was free to accept or refuse additional work.
Last Modified: Tuesday, 5 March 2013