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Difference between employees and contractors – bearing risk

To determine if a worker is an employee or contractor, consider whether they bear the risk for rectifying work defects.

Last updated 15 December 2022

Workers don't bear risks

This is a characteristic of an employee.

The worker does not bear the legal risk if your business:

  • 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 borne a risk.

Start of example

Example: business is liable for damages

A commercial cleaning business has a contract to clean a number of small offices. The business hires 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 bear the risk 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

Workers bear risks

This is a characteristic of a contractor.

The worker bears the legal risk if:

  • the worker is legally 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.
Start of example

Example: contractor is liable for damages

Robert is a pest control technician. He contracts his services to an architect business to carry out an annual pest spray. Robert completes the pest spray, treating 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 to come back and respray the area to eradicate the cockroaches.

Robert bears risks as he is legally responsible for rectifying his work and that rectification is at his own expense.

End of example