• Commercial risks

    When working out whether a worker is an employee or contractor for tax and super purposes, one of the factors to consider is whether the worker bears the legal risk and is liable for rectifying, at their own expense, any defect in the work.

    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 done by the worker
    • has to rectify any defect or pay to have the defect rectified.

    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.

    Example

    A commercial cleaning business has a contract to clean several small office buildings. The business has several cleaners who do 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.

    End of example

    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.

    End of example

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    Last modified: 22 Feb 2016QC 33188