Type of worker
You need to know if a worker is an employee, independent contractor or volunteer of your not-for-profit organisation, as this status may affect the tax treatment of dealings between the individual and the organisation.
You should always consider the facts and circumstances of each individual when determining whether they are a volunteer, employee or independent contractor.
Employee – definition
Generally, an individual is considered to be an employee if they meet the following requirements:
- are paid for time worked
- receive paid leave – for example, sick, annual, recreation or long service leave
- are not responsible for providing the materials or equipment needed to do their job
- must perform the duties of their position
- agree to provide their personal services
- have work hours set by an agreement or award
- are recognised as part and parcel of your organisation's business
- do not take commercial risks and cannot make a profit or loss from the work performed.
Independent contractor – definition
An independent contractor is an entity (such as an individual, partnership, trust or company) that agrees to produce a designated result for an agreed price. In most cases an independent contractor meets the following requirements:
- is paid for results achieved
- provides all or most of the necessary materials and equipment to complete the work
- is free to delegate work to other entities
- has freedom in the way the work is done
- provides services to the general public and other businesses
- is free to accept or refuse work
- is in a position to make a profit or loss.
Volunteer – definition
There is no legal definition of 'volunteer' for tax purposes. A dictionary definition of a volunteer is someone who enters into any service of their own free will, or who offers to perform a service or undertaking.
A genuine volunteer does not work under a contractual obligation for remuneration and would not be an employee or independent contractor.
How to determine if workers are employees or independent contractors
It is important to understand the meaning of employee, contractor and volunteer to help you work out the status of your not-for-profit organisation’s worker.