• Working out if your worker is an employee or contractor

    To determine whether your worker is an employee or contractor for tax and super purposes, 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:

    There is no single factor that will determine whether the worker is an employee or contractor. You need to look at the whole working arrangement and consider each of these six factors. The agreement or contract your business has with the worker can be written or oral.

    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.

    Worker cannot sub-contract/delegate the work

    This is a characteristic of an employee.

    A worker cannot sub-contract or delegate the work if either:

    • the agreement or 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 – substitute worker

    A construction business has several labourers who complete work on a job site.

    At short notice, one of the labourers, Ben, cannot do their day shift. As he knows the construction business will be unhappy about having to find a replacement at short notice, he organises for his mate who has done labouring work for the construction business previously to cover his shift.

    Ben lets the construction business know his mate is covering his shift. The construction business pays Ben's mate for the work they completed.

    As Ben only organised for his mate to complete his shift and did not pay him, he has not sub-contracted/delegated the work.

    End of example

    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 – worker sub-contracting or delegating

    Julie, a painter, has been contracted to prepare, prime and paint the interior walls of a motel. The work must be completed between 1 July - 4 August (five weeks).

    According to the agreement, Julie is not required to perform the work herself and can pay another person to do the work (she does not need permission from the motel).

    After one week into the job, Julie slips over at home, hurts her back and needs to rest for four weeks.

    To ensure the painting job is completed within the required timeframe, she organises for her friend (who runs a painting business) to complete the job at the motel for an agreed price.

    When the painting job is completed to the required standards, the motel pays Julie (who they have a contract with) for the work completed. Julie then pays her friend the amount they agreed upon.

    As Julie was contractually not required to perform the work personally and could pay another person to do the work, she was able to sub-contract/delegate the work.

    End of example

    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, daily, weekly rate (which is paid regularly, for example weekly or monthly)
    • for the time they work.

    The following types of payment are considered a set amount per period:

    • an amount paid under an industrial instrument, for example and award or enterprise agreement
    • loaded hourly rates
    • hourly contract rates.

    Example – paid a set amount

    A concreting business is completing work on a residential building project.

    They have several concreters who do the formwork and pour, spread, smooth and finish the concrete.

    The concreters are paid:

    • an hourly rate (which is paid weekly)
    • for the hours they work each week.

    The concreters are paid on a set amount per period basis as they are paid a regular, set amount for the time they work.

    End of example

    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, the number of bricks laid, amount of formwork erected or dismantled, weight of steel fixed or per square metre of plasterboard installed)
    • for the number of items or activities they produce during a defined time period (for example daily, weekly, fortnightly or monthly).

    Example – piece of work rate

    A plastering business needs help to complete a job and engages an additional plasterer on a temporary basis.

    The additional plasterer is paid:

    • a specific amount per square metre of plasterboard they install
    • for the number of square metres of plasterboard they install each day.

    The additional plasterer is 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.

    End of example

    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.

    Sometimes progress payments are paid once the worker has satisfactorily completed specific stages of the task or project.

    Example – paid for result

    A roofing business is inundated with work due to a series of severe storms that have hit the area.

    They approach John, a roof tiler they know, to see if he can complete a job which involves the repair of a tiled house roof. John can fit the job in and provides the roofing business a quote for the required work (which the business accepts).

    When John finishes repairing the house roof, the roofing business inspects the work and as the work was up to the required standard, they then pay John the amount he quoted for the completed work.

    John is paid for a quoted price for an agreed or pre-determined result as all of the following apply:

    • the basis for his job is to complete a specific task (repairing the tiled house roof)
    • John provided a quote for the roof repair
    • the roofing business paid John the quoted amount only when he completed the roof repair (the completion of the roof repair is what entitled John to be paid).
    End of example

    Equipment, tools and other assets

    This factor is about who is responsible for providing the equipment, tools and other assets (such as heavy machinery, specialised equipment 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
    • 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 – business is responsible

    A bricklaying business has been contracted to build a brick barbeque area. The business has a bricklaying labourer, Chris, helping with the job.

    Chris brings along his trowel, tool belt and spirit level. The bricklaying business provides the other equipment, tools and assets to complete the job including:

    • shovels
    • cement mixer
    • ute to transport the materials (sand and cement) to the job site.

    Although Chris provides some tools, the business is considered responsible for providing the equipment, tools and other assets as they provide the majority of the equipment, tools and assets needed to perform the work.

    End of example

    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:

    • 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 – worker is responsible

    A carpentry business talks to Bruce, a carpenter they know, to see if he can complete a job which involves repairing a timber deck which has dry rot. Bruce can do the job and provides a quote to complete the job (which includes supplying the required materials).

    The business accepts the quote and Bruce undertakes the work.

    Bruce is responsible for repairing the timber deck. He provides the required equipment, tools and assets to complete the job including:

    • hand tools
    • nail gun
    • drop saw
    • vehicle to transport the materials to the job site.

    When the timber deck is repaired to the required standard, the business will pay Bruce the amount he quoted for the job (the business does not provide any other payments to Bruce).

    Bruce 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.
    End of example

    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.

    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 – business responsible for risk

    A glazing business has a contract to install glass in a new commercial office building. The business has several glaziers who complete the work.

    After several days into the job, the business finds that one of the glaziers has not installed some of the glass correctly.

    Under the contract, the glazing business is liable to rectify the problem with the glass.

    The business reprimands the glazier for their poor workmanship and directs them to:

    • fix the glass that has not been installed correctly. The glazier completes this work:
      • during their standard working hours and the business pays them as usual for those hours
      • using the business's equipment, tools and materials.
       

    The glazier does not take commercial risks as they are not responsible for their work.

    The glazing business:

    • bears the legal risk for the work and is responsible for defects in the work performed by the glazier
    • has paid 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 – worker responsible for risk

    A builder (who has their own business) contracts a bricklayer, Milo, to construct a brick retaining wall.

    The builder will pay Milo an agreed amount upon satisfactory completion of the retaining wall.

    When the builder visits the site not long after Milo completed the job, they discover part of the wall has collapsed. Under their agreement, the builder can ask Milo to rectify the defect. The builder is not required to pay Milo for the cost of the extra materials or extra labour costs associated with the time taken to fix the wall.

    Milo does not necessarily need to rectify the defect himself. However if he does not perform the work himself, he must still cover the cost of the rectification. This cost could be met out of any retention money that the builder is holding on behalf of Milo.

    Milo takes commercial risks as he bears the legal risk for his work and rectification at his own expense.

    End of example

    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 – business controls how work is done

    A scaffolding business has several scaffolders who erect and dismantle scaffolding to provide work platforms and handrails on building sites.

    The scaffolders are:

    • told what scaffolding jobs they need to complete (usually on a daily basis)
    • told where the jobs are located (building site details where they need to erect or dismantle the scaffolding)
    • provided with instructions about how the scaffolding needs to be completed
    • required to work set hours specified by the scaffolding business and are entitled to paid breaks (morning and afternoon tea breaks).

    The scaffolding business controls the way the work is done as they direct what, where, how and when the work is done.

    End of example

    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).

    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.

    Example – worker decides how work is done

    An electrical business is running behind on a job and cannot complete an upcoming house rewiring job by the agreed date.

    The electrical business contracts an electrician, Louis, to complete the house rewiring job.

    According to their agreement, Louis must complete the work by the due date and meet the required wiring specifications.

    Louis is free to determine how the work is carried out (including the priority or order of tasks) and is not supervised by the electrical business. Louis can choose what hours he works to complete the job.

    Louis can decide the way the work is done as he is free to exercise his discretion in completing the work (subject to the terms and conditions in the agreement).

    End of example

    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 – worker not operating independently

    A fencing business builds timber fences on residential properties. They have several fencing installers who complete the work.

    The fencing installers work on an ongoing basis for the business and:

    • obtained their job initially by answering the fencing business's job advertisement
    • do not advertise their services.

    The fencing business directs what jobs the fencing installers will complete and the hours they will work. The fencing installers are required to perform any fencing related tasks the business reasonably ask of them.

    The fencing installers are not operating independently from the fencing business as they work within and part of the fencing business - that is, there is only a single business being operated (the fencing business).

    End of example

    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.

    The worker performs services as specified in their contract or agreement and is free to accept or refuse additional work.

    Example – worker operating independently

    Jodi is a project manager with her own website who regularly advertises her services.

    A construction business enters into a contract with Jodi to coordinate the construction of a residential development.

    Jodi coordinates all aspects of the job as contractually required. One month before Jodi is due to wrap up the project, the construction business asks if she can project manage another residential development project due to commence in six weeks.

    As Jodi has picked up another job during this time, she declines the offer from the construction business.

    Jodi is operating independently from the construction business as she:

    • is operating her own business (independently from the construction business)
    • performs services as specified in her contract and was free to accept or refuse additional work.
    End of example
      Last modified: 13 Apr 2016QC 18176