On 9 February 2022, the High Court handed down decisions in Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd  HCA 1 and ZG Operations Australia Pty Ltd v Jamsek  HCA 2, which impact ATO advice and guidance in relation to classifying workers.
We are currently considering these decisions and the impact they will have in relation to the worker classification risk, and we have published a decision impact statement.
Draft public advice and guidance products were published for consultation on the ATO legal database on 15 December 2022, with the consultation period open until 16 February 2023. Information to help you determine whether your worker is an employee or contractor is available at employee or contractor.
To work out if your worker is an employee or contractor, you need to determine whether your worker is serving in your business or is running their own business. You do this by reviewing the legal rights and obligations in the contract you entered into with your worker.
Contracts are usually written, but there may also be oral contracts or a hybrid. Your contract may also be varied based on your or your worker’s conduct. Any label which you and the worker use in your contract to describe your relationship (such as ‘independent contractor’) will not determine or be relevant to how your relationship is characterised.
The critical differences between an employee and independent contractor are:
- an employee serves in your business, and performs their work as a representative of your business
- an independent contractor provides services to your business and performs work to further their own business.
It is crucial that you accurately characterise the nature of the business that you carry out. You should examine the essential activities of the business that you operate and compare them with the legal rights and obligations contained in the contract you entered into with the worker.
Although the old multifactorial test is no longer used, the same indicia are still relevant in considering whether the worker is working in your business, taking into account only the legal rights and obligations between you and your worker.
The table below outlines each indicia and some features that may points towards or against a finding of employment. No single indicia is definitive and they should not be applied as if they are a checklist.
Analysis of the indicia must be done by reference only to the legal rights and obligations that arise from the contract you enter into with your worker.
Control: your business has the legal right to control how, where and when the worker does their work.
Control: the worker can choose how, where and when their work is done, subject to reasonable direction by you.
Integration: the worker serves in your business. They are contractually required to perform work as a representative of your business.
Integration: the worker provides services to your business. The worker performs work to further their own business. They may choose to present themselves as part of your business.
Mode of remuneration: the worker is paid either:
Mode of remuneration: the worker is contracted to achieve a specific result, and is paid when they have completed that result, often for a fixed fee.
Ability to subcontract or delegate: the worker must perform the work themselves and cannot pay someone else to do the work for them.
Ability to subcontract or delegate: the worker is free to delegate to others who the worker will pay to complete the work on their behalf.
Provision of tools and equipment: your business provides all or most of the equipment, tools and other assets required to complete the work, or the worker provides all or most of the tools, but your business provides them with an allowance or reimburses them for expenses incurred.
Provision of tools and equipment: the worker provides all or most of the equipment, tools and other assets required to complete the work, and you do not give them an allowance or reimbursement for the expenses incurred.
The work involves the use of a substantial item that your worker is wholly responsible for.
Risk: the worker bears little or no risk. Your business bears the commercial risk for any costs arising out of injury or defect in their work.
Risk: the worker bears the commercial risk for any costs arising out of injury or defect in their work.
Generation of goodwill: your business benefits from any goodwill arising from the work of the worker.
Generation of goodwill: the worker’s business benefits from any goodwill generated from their work, not your business.
Authorised by the Australian Government, Canberra.
In certain circumstances you must pay superannuation for contractors who are deemed to be employees for superannuation purposes. These circumstances include the following.
- If the worker works under a contract that is wholly or principally for their labour.
- A sportsperson, artist or entertainer paid to perform, present or participate in any music, play, dance, entertainment, sport, display or promotional activity, or similar activity.
- A person paid to provide services in connection with any performance, presentation or participation in these activities.
- A person paid to perform services related to the making of a film, tape, disc, television or radio broadcast.