02/02/2022

Contractor Provisions

Workers’ Compensation Contractor Provisions Guidelines

What is the distinction between a Principal Contractor, a Contractor, a Subcontractor, an Independent Contractor, a Worker, and an Employee?

When hiring a new employee, knowing whether a worker is a contractor or an employee is important for a variety of reasons. Whether you are an employee or a contractor, you will have different Taxes, Superannuation, and other Government obligations. Because of the various taxation and superannuation implications, classifying an employee as a contractor is illegal. Businesses must review all employment contracts to ensure that employees and contractors are correctly classified and that employee benefit provisions recognised under International Accounting Standard IAS 19 (IAS 19) reflect this.

As a result, distinguishing between an employee and a contractor is critical for ensuring that your company provides appropriate employee leave benefits and accounts for them in your financial statements. IAS 19 Employee Benefits, in particular, specifies the requirements for recognising and measuring various types of employee benefits, such as the amount and timing of recognition.

Before entering into an agreement with a new employee, you must determine whether he or she is an employee or a contractor. Employees are usually part of a larger organisation. A contractor operates their own company with their own Australian Business Number. Use the ATO online tool to determine whether your worker is an employee or a contractor. See Australian ‘Taxation Office (ATO) Decision Tool’.

The term “coverage” in the context of workers’ compensation differs from that of other types of insurance, where coverage frequently refers to monetary limits or the agreed-upon scope of a policy. In this context, coverage refers to the ability to file a claim under a workers’ compensation scheme.

In Australia, Workers’ Compensation Schemes generally consider three core criteria to determine whether a worker can claim workers’ compensation for a specific injury or illness.

The rules of the specific workers’ compensation scheme in their jurisdiction will determine whether a worker is covered by workers’ compensation.

The claimant must be covered as a worker or deemed worker under the applicable scheme (coverage)

They must have suffered a compensable injury or illness (or death), and there must be a causal link between the injury or illness and the claimant’s employment (work-relatedness).

When reviewing contractor provisions, the High Court considered the following factors.

Employees have rights under different laws, such as sick leave, the ability to use the unfair dismissal authority, and the requirement to purchase workers’ compensation insurance, but contractors do not. If the court rules that the contractor is an employee, there may be claims for employee benefits. The High Court focus on the terms of the contract agreed upon by the parties rather than the parties’ conduct after entering into the contract.

It makes no difference how a relationship is labelled or how the parties perceive the characterisation of the relationship. The method of remuneration, the provision and maintenance of equipment, and the work obligation are all taken into account by the Court. Working hours, leave (holiday), work delegation, and who has the authority to direct and control.

Three important factors:

Employers are encouraged to review the presentation to understand how the factors were applied in the recent High Court Decisions.

* A right to control the individual in the contract will point towards employment.

*An obligation to provide significant equipment will point towards contracting.

*Payment at an hourly rate will support employment.

High Court decisions regarding the classification of employees and contractors could affect employee benefit provisions

Case Studies:

Over the past few years, the issue of providing adequate benefits to employees has been widely covered in the media, for example:

‘Double dipping’ of employee entitlements by casual employees receiving a pay loading and then claiming leave entitlements – WorkPac Pty Ltd v Rossato (Rossato decision) and subsequent High Court overturning of the Rossato decision, followed by changes to the Fair Work Act 2009

‘Wage theft’ cases where some entities have been underpaying employees for a sustained period of time due to using incorrect awards, not paying overtime, etc.

Two recent High Court decisions, ZG Operations v Jamsek and CFMMEU v Personnel Contracting, shed light on business employment practices and have an impact on the quantum of employee benefits recognised in the balance sheet.

In simple terms, the High Court’s decisions in these two cases mean that the relationship between a business and its employees is based on the rights and obligations set out in a written legal agreement (contract) between the parties, rather than the day-to-day operations of the relationship, which could span decades. If the terms of a written agreement are not being contested, there is no need to consider the relationship’s “substance and reality.”

The legal agreement in the ZG Operations v Jamsek case was considered an independent contractor agreement, and thus two truck drivers failed in their bid for more than $1 million in unpaid overtime because they were not employees under the written agreement.

In the CFMMEU v Personnel Contracting case, Mr McCourt, who was represented by the CFMMEU, was considered an employee even though the legal agreement labelled him as an independent contractor. This is due to the legal agreement’s terms describing an employer-employee relationship.

October 2022 Update: A recent High Court decision on how workers should be classified as independent contractors or employees has significant implications for some labour hire companies.

Independent contractors, roosters and ducks — the High Court decision in CFMMEU v Personnel Contracting

You have nothing to be concerned about if you provide all workers as employees and meet all of your obligations. If you supply workers such as labourers, fruit pickers, cleaners, security guards, or production workers as independent contractors, you must now make important decisions. You should think about your approach and seek independent legal advice.

The Court ruled that labour hire companies cannot simply refer to their employees as “independent contractors” and treat them as such. The nature of a labour hire relationship raises the question of whether a worker can be an independent contractor when the nature of the work requires relatively low skill. In a separate case, it is obvious that a worker can be an independent contractor if the worker directly supplies substantial plant or equipment, such as a semi-trailer truck, on an owner-driver basis.

It is critical to distinguish between independent contractors and employees. Employees are entitled to employee benefits and protections such as award wages, penalty rates, and leave, among other things. If a worker is mistakenly classified as an independent contractor:

Significant claims for backpay, leave, and other entitlements may be made, and significant penalties may be imposed.
Penalties may be imposed on Company Directors personally.
The Labour Hire Licence could be revoked.
The Australian Taxation Office may impose additional requirements, such as superannuation and PAYG.

Even in a formal written contract, labelling a worker as an independent contractor may not hold up in court. According to the High Court decision:

“the parties cannot create something which has every feature of a rooster, but call it a duck and insist that everybody else recognise it as a duck”.
Labour Hire Authority

LHA is focusing on independent contracting abuse, which results in workers receiving less than they would as employees. LHA will also refer exploitation cases to appropriate authorities for prosecution. Labor hire companies may have misclassified workers, according to LHA investigations. When the LHA discovers that employees were misclassified as independent contractors, it has the authority to impose conditions or cancel labour hire licences.

“The principle is crystal clear – labour hire providers must ensure that workers receive at least Award wages and conditions. Calling workers independent contractors does not escape employment law obligations. Not only is sham contracting unlawful, it deprives workers of their entitlements, while enabling unscrupulous businesses to undercut the great many companies doing the right thing. With our strong investigative powers, any labour hire provider that exploits workers can expect to be held to account.”
Steve Dargavel, Labour Hire Commissioner.

Recommend reading: Employers’ New Labour Hire Obligations – State-by-State Guide and Update

Employers’ New Labour Hire Obligations – State-by-State Guide and Update

September 2022 Update: An Employee or a Contractor? A Fair Work Commission (FWC) landmark ruling.

Fair Work Commission reinforces the High Court’s new ‘Employee v Contractor’ Test

In the case of Franco v Deliveroo Australia Pty Ltd back in June 2021.

Mr Franco was a Deliveroo delivery rider. He signed a series of agreements stating that the relationship was not one of employment. The agreements stated that he owned his business, was free to provide services for other food delivery companies, was not required to do any work for Deliveroo, was free to work whenever he wanted and was to provide his own mobile phone and vehicle. The agreements also stated that he was responsible for his own taxes, but Deliveroo would cover certain insurances. Mr Franco was an ‘Independent Contractor,’ not an ‘Employee,’ according to the written agreement.

After three years of slow deliveries, Deliveroo terminated Mr Franco, who filed an unfair dismissal application with the Fair Work Commission, proving that he was a Deliveroo employee, not an independent contractor, as stated in the agreements. Based on three decades of case law, the High Court agreed that Mr Franco worked for Deliveroo. It entailed investigating the two parties’ relationship and weighing several factors before deciding whether the relationship is one of principal and independent contractor or employment. See ‘Multi-factor Test’

As a result Deliveroo was ordered to reinstate Mr Franco with backpay.

Deliveroo Appeal to FWC

The Fair Work Commission recently issued a decision in this case in response to Deliveroo’s appeal. A Full Bench of the Fair Work Commission determined that a delivery driver was not an employee of Deliveroo and thus was ineligible to file an unfair dismissal claim, emphasising the significance of recent High Court decisions on the distinction between employees and independent contractors.

The FWC full bench decision overturned an earlier decision by a single Commission member who used the’multifactorial test,’ which was the relevant test at the time. On appeal, the Full Bench stated that the “multifactorial test” has been effectively replaced by a new test enunciated in the recent High Court decisions of Personnel Contracting Pty Ltd and Jamsek Pty Ltd

The High Court & FWC Views

According to the new High Court authorities, where a relationship is governed by a contract that is entirely in writing, the determination of whether the person is an employee or contractor must be made solely on the basis of the rights and obligations of the parties under that contract, rather than any subsequent conduct during the course of the relationship.

As a result, the FWC full bench determined that it was necessary to consider the factors that indicated an employment relationship, such as Deliveroo’s degree of control over Mr Franco, rather than focusing solely on the terms of the written contract. Following a thorough examination of the contractual rights and obligations, it was concluded that Franco was not an employee, and thus his unfair dismissal claim was dismissed.

Conclusion in the case of Franco vs Deliveroo

This decision exemplifies how the new test for determining whether someone is an employee or a contractor can result in very different outcomes, while also emphasising the importance of having strong written agreements in place with both contractors and employees.

myWorkCover conducted a search on how to become a food delivery driver and found that all food delivery companies such as DoorDash, Uber Eats, Deliveroo and Menu Log stated one thing in common on their websites, the driver is classified as an “independent contractor”.

In the event, Mr Franco was injured during the delivery for Deliveroo

A contractor or independent contractor may be considered a worker under the Workers’ Compensation ‘Contractor Provision.’ The High Court and FWC only decide whether a person who provides a service is considered the person is a worker or a contractor. However, the ruling under Workers’ Compensation has yet to be issued by the High Court and the FWC. Thus, the ruling left Mr Franco whether he would be covered under the Workers’ Compensation scheme if he was injured. Only WorkCover has the authority to make such a decision, and unfortunately, the state’s WorkCover has yet to make one.

In Mr Franco’s case, a customer places an order through Deliveroo and paid for delivery. Deliveroo picks up the order from their system and then sends the request to Mr Franco to pick up the food from the restaurant. Mr Franco then pick up the order from the restaurant and delivered it to the customer. Deliveroo then paid Mr Franco for the delivery.

One important consideration for Workers’ Compensation is that the payment is made directly to Deliveroo, and Deliveroo pays the driver. Mr Franco may be considered a Deliveroo employee because Deliveroo is the paying entity which could make Deliveroo the employer. Under the Act’s definition of a worker and the Contractor Provision, Mr Franco could be considered a Deliveroo employee.

Despite the fact that the recent FWC panel overruled the High Court decision based on the ‘Multifactorial Test’ and reached their decision based on the contractual agreement. When determining whether your worker is an ‘Employee’ or a ‘Contractor,’ you must still apply the multifactor test along with the ATO’s six golden rules.

Difference Between “Employees” and “Contractors”

How to tell if a contractor you hired qualifies as a worker for WorkCover insurance purposes.

In general, as a contractor, you are not entitled to paid sick leave if you are unable to work due to illness or injury. Furthermore, if you are injured at work, you may not be entitled to workers’ compensation benefits. This generally means that you are responsible for arranging your own income protection insurance. If you are unable to work and earn an income, this will assist you in managing your expenses. Income protection insurance is available from the majority of large insurance companies.

The distinction between an independent contractor and an employee is critical. If you are deemed to be an employee rather than an independent contractor, you may be required to pay their Superannuation, holiday pay, health insurance, other benefits, tax, and so on.

In most cases, an independent contractor is hired for a single project or time period. Owns and operates their own business. Invoices are submitted under their own company name and ABN. Pays their own GST, tax, and superannuation, and is frequently paid on an hourly or outcome basis. Is responsible for their work and liable for the costs of correcting any errors. Finishes the job using their own tools and equipment. Has complete control over how and where work is completed (subject to any contract), and can subcontract or delegate work to another independent contractor.

WorkSafe Victoria – Contractor guideline flowchart

Click to download a full copy of the flowchart Download

Why should you keep an “arm’s length” relationship with your contractor?

You should maintain an ‘arm’s length’ relationship with any contractor, freelancer, or consultant to avoid incurring Superannuation, holiday pay, health insurance, other benefits, Tax, and other obligations. You should also hire your service provider on a short-term contract and make certain that they are not performing ‘normal everyday business functions on an ongoing basis. Otherwise, you risk invoking ATO’s ’employee’ provisions. A well-written Contractor Agreement (along with your contractor’s own business structure and ABN) will help clarify the contractual relationship and ensure no ’employee/employer’ relationship is implied.

The Guide

We must first review the definition before we can assess and determine whether your contractors are considered workers by WorkCover Authority.

myWorkCover Contractor Provisions Guidelines

How do you know if a contractor you hired is a deemed worker for WorkCover insurance?

These guidelines are intended to assist you in determining whether a contractor you hire may be considered your worker for WorkCover insurance purposes. It is your responsibility as an employer to determine whether your contractors are considered workers by WorkCover Authority in your state or territory. Contact myWorkCover if you need assistance.

If your contractor is a deemed worker, your total declared remuneration to the WorkCover Authority will be affected, which is one of the key factors that determine your premium and whether you must register for WorkCover insurance.

Contractor Provisions under Labour hire providers & Adhoc workers

These rules do not apply to you if you hired an individual through a labour-hire (or on-hire) company and paid that company for the work done in your business. It is critical to get this right because failing to register for WorkCover insurance and pay the correct premium is against the law. You risk having to pay the premium that should have been paid, as well as penalties of up to 100% of that amount.

These regulations also do not apply to owner drivers, door-to-door sellers, timber contractors, taxi drivers, share farmers, insurance sales agents contracts, outworkers, or athletes. Although exemptions may differ from state to state.

Insurance sales agents’ contracts

Where services are provided to a person (for example, an insurance company) in order for that person to sell insurance policies. Contracts under which a person is supplied with services solely for, or in relation to, the procurement of persons desiring to be insured by the person are exempted. The exemption applies to contractors who sell general and life insurance for insurance companies on a commission basis. Commissions from the sale of other non-insurance products are not exempt.

Door-to-door sellers

For WorkCover insurance purposes, a door-to-door seller performing work under a selling arrangement is not a worker of the hirer/vendor unless WorkSafe determines that the arrangement was entered into with the intent of directly or indirectly avoiding or evading the payment of WorkSafe premium. A door-to-door seller is someone who is engaged by a hirer/vendor under a contract or selling arrangement.

See Understand whether door-to-door sellers are considered workers for the purposes of WorkSafe.

Outworkers

Outwork is contract work in the clothing industry that involves packing, processing, or working on articles or materials. This work must be completed outside of the hirer’s factory or workshop, as well as in or near a private residence or other non-commercial or business premises. If an outworker signs a contract with a hirer other than the outworker’s family business, the outworker is considered a worker of the hirer for WorkCover insurance purposes, as long as the outworker does some of the outwork personally. If a family business enters into a contract with a hirer to perform outwork, each person hired by the family business to perform outwork under that contract is considered a worker of the hirer for WorkCover insurance purposes.

Taxi drivers

For WorkCover insurance purposes, when one person (the driver) has use of a motor vehicle under a bailment contract with another person (the operator) and transports passengers for a fee and is required by the contract to pay the operator for the use of the motor vehicle, the operator is considered the driver’s employer. The amount received by the driver for transporting passengers less than the amount paid or payable to the operator for the use of the motor vehicle must be declared as rateable remuneration by the operator for WorkCover insurance purposes if the operator is the driver’s employer.

Sharefarmers

The sharefarmer may be the landowner’s employee if a contract between the landowner and a person (the sharefarmer) states that the sharefarmer will receive a percentage of the property’s earnings (in cash or in-kind) in exchange for working on the land. The sharefarmer must earn less than one-third of the land’s income to qualify as the landowner’s employee, or the written sharefarming agreement must state that the landowner is liable for the sharefarmer if they are injured while performing sharefarming duties (for instance, under Victorian workers compensation legislation).

Sporting contestants/athletes

If an employer engages a person to participate as a contestant in a sporting or athletic activity (other than in relation to section 19 of the Racing Act), the person is not considered a worker for WorkCover insurance purposes while participating as a contestant; engaged in training or preparation for the contest, or travelling between a place of residence and the place where the person is participating or travelling.

Timber contractors

A timber contractor is someone who is hired by a hirer to fell trees and deliver the timber to the hirer; cut firewood and deliver it to the hirer; fell trees or cut shrubs on the hirer’s land; clear stumps or logs from the hirer’s land; and remove stumps or logs, whether by loading them onto a vehicle or otherwise.

A timber contractor is an employee of a hirer who: is engaged in or for the purposes of the hirer’s trade or business; is a natural person or a partner in a partnership and agrees to work for the hirer under a timber contract.

A timber contractor is not a worker: if the timber contractor subcontracts the entire timber contract; does not personally perform any work under the timber contract and employs or engages others to perform all of the work under the timber contractor is a partner in a partnership of two or more individuals and no part of the work under the timber contract is personally performed by any member of the partnership.

Contract of Service & Contract for Service

It is not always easy to tell the difference between an independent contractor and an employee. A contract of service exists between you and your employee, but a contract for service exists between you and an independent contractor. The distinctions are subtle, but they are important.

An employee usually follows their boss’s orders. A contractor runs their own business and offers a service; they typically work the hours necessary to complete a task and have complete control over how they work. However, even these factors are insufficient to determine whether someone is an employee or an independent contractor.

A court or tribunal considers the entire picture (the totality of the relationship) as well as all possible factors (a multi-factor test), including:

The degree of control over how and when work is completed.
Work hours
The expectation of ongoing work
Financial risk-taking
Who provides the tools and equipment?
Payment Method
Leave entitlements
Capability to work for other companies
Right to delegate or subcontract

If you misrepresent to your worker the nature of your relationship, this could be considered a sham contracting arrangement under the Fair Work Act 2009 (the Act).

Contract of Service

What the Act says

Section 5 (primary definition):
“…“worker” does not include a person whose employment is of a casual nature and is not for the purpose of the employer’s trade or business,… but save as aforesaid, means any person who has entered into or works under a contract of service or apprenticeship with an employer, whether by way of manual labour, clerical work, or otherwise and whether the contract is expressed or implied, is oral or in writing; …”

To determine whether or not a person is entitled to compensation, we must first determine whether or not they are a worker as defined by legislation and common law principles. Many contractors and subcontractors may be classified as workers under the primary definition if they lack independence in their operations and do not run a genuinely independent business or enterprise.

The employer-employee relationship has long been recognised in common law, but with so many new work situations, the definition of the term is changing. The relationship between the employer and the employee is referred to as the ‘contract of service.’ This is what is known as a master-servant relationship. A ‘contract for service’ is any agreement to do work if there is no contract of service. Contracts can be verbal or written, defined or implied.

Important Note:

A person cannot contract out of their legal rights. This means that signing a contract stating that a person is not a worker does not change their status.

The terms of a contract reveal the nature of the contractual relationship. Contracts that claim to define a relationship as independent contractors and principals cannot alter the true nature of the relationship. The facts and/or behaviour of the parties reveal the true nature of the relationship. The rights and obligations created by the contract, rather than the label the parties apply to it, must determine the characterisation of a contractual relationship.

A large part of the workforce works under a ‘contract of service‘ including:

full-time and part-time workers
casuals (working for an employer’s trade or business)
seasonal and piece workers
workers on salary or wages
workers supervised and controlled by an employer
workers who may be fired by an employer
workers who work for only one employer; and
workers with set hours of work.

Although no definitive statement can be applied to determine whether a contract of service exists, it is generally clear whether a person is working under such a contract, i.e. the relationship is one of employer-employee, and the employer must take out workers’ compensation to cover that employee. There are several factors that distinguish service contract employees from independent contractors. No single factor alone indicates a contract of this type. Instead, consider the entire employment relationship.

Control Test

If a principal has the authority to direct what work an individual does, how they do it, and when they do it, the individual is most likely a worker (working under a ‘contract of service‘). The control test will differ depending on the industry standards and the nature of the work performed by the contractor. The ability or right to exercise such control over how duties are performed is used to determine a contract of service, not the actual exercise of control.

The level of control over a worker is the most important indicator of the existence of a contract of service. If the worker’s work is directed and controlled by the other person, an employer-employee relationship is more likely to develop. However, if the worker agrees only to produce a specific result but is not subject to control in doing the work, the relationship is more likely to be classified as a principal/independent contractor.

The following factors are not meant to replace the control test, but they can help determine whether or not the control test is met. Determine whether the worker has no right to delegate his or her work, no right to hire others to perform his or her contractual obligations, is usually required to work at set times and is usually required to work at the employer’s place of business or other locations as directed or approved by the employer.

The integration test

Entails that a worker is typically an integral part of, or is presented to the public as an emanation of, the principal’s business (ie the employer). In the course of performing his or her duties, a worker has no ability to accumulate goodwill or sellable assets.

The results test

If an individual is hired to produce a specific result or complete a specific task, he or she is more likely to be an independent contractor. Workers, on the other hand, usually fill a position and have an ongoing role that is unrelated to a specific task. In contrast to an independent contractor, a worker is typically paid on a regular basis regardless of the work performed (e.g., fortnightly). It should be noted that the Results Test is not a reliable universal predictor and is subject to legal challenge.

The risk test

If work is not completed satisfactorily, independent contractors are more likely to face commercial risks. They will be required to correct defective work or may be sued for any losses or damages caused by defective work. Workers are rarely exposed to these hazards. Other factors include whether a worker incurs no (or minimal) costs while performing his or her duties, and whether or not the worker has the ability to profit or lose while performing his or her duties. You can apply these tests to a contractual relationship using the online contractor assessment tool on the ATO Tool Kits.

Remuneration

When remuneration is based on time spent on the job, the relationship is likely to be one of service and employer-employee. When the contract relates to services provided (i.e. a contract for services), remuneration is more likely to be based on results or levels of production.

Working hours

Working hours specified in a contract imply higher levels of control and supervision. This, in combination with other factors, may indicate the existence of a service contract and an employer-employee (worker) relationship.

Minimum entitlements

Independent contractors don’t get other entitlements that employees get such as leave and notice of termination unless they negotiate for these entitlements to be included in their contract. Independent contractors do not have a minimum wage or pay rate because they are not employees. Instead, independent contractors usually negotiate payment for the services they provide as part of their contract.

When an independent contractor is a due payment, they will submit an invoice. They may be paid on a regular basis or at the conclusion of a contract or project.

The right to employ others

If a person is entitled to delegate their work and employ others to do the work for them, then the relationship is more likely to be a contract for service, than a contract of service.

Equipment

Generally, the higher the level of material and equipment provided for the worker, the more likely it is that he or she is employed under a contract of service.

Termination

A right to dismiss a worker does not by itself indicate a contract is a contract of service. However, it is a further example of the right to control a worker and may indicate that one party has effective control of the conduct of the work of another.

Terms of the contract

Just because two parties enter into a contract, which says the relationship is one of principal and contractor, does not necessarily mean that such a relationship is established under the Act. If all other
factors indicate the relationship is of another kind, then the parties’ expressed intentions do not alter its true nature. However, an express provision in the contract will bear greater significance in law if the relationship is ambiguous.

Contract for Service

What the Act says: Section 5 (extended definition)
(a) “…any person to whose service any industrial award or industrial agreement
applies; and (b) any person engaged by another person to work for the purpose of the other
person’s trade or business under a contract with him for service, the remuneration by whatever means of the person so working being in substance for his personal manual labour or services
…”

A ‘Contract for Service’ is an agreement between a company and a self-employed individual in which the company agrees to pay the individual for a limited amount of service without the individual formally becoming an employee. Thus we refer to this self-employed individual as a “Contractor or Subcontractor”. The contract will specify the nature of the contracted work, its compensation, and any other information deemed necessary for contract clarification.

People not employed under a ‘Contract of Service‘ may still fall under the extended definition of worker in the Act, i.e. they are under a contract for service. These include many independent contractors and sub-contractors. Two major factors must be satisfied before someone can be defined as a worker under the extended definition:

they must be engaged by another person to work for that person’s trade or business; and
the remuneration must be in substance for his or her personal manual labour or services

To determine whether a worker falls within part of the extended definition, it is necessary to establish what the worker is paid for.

The meaning of the term ‘in substance’

The phrase “in substance” broadens rather than narrows the extended definition of a worker. Payment received for reasons other than providing manual labour or services does not invalidate the definition. However, the other reason must be minor in comparison to the payment made for labour or services.

Consider the following factors when determining whether or not the remuneration is in substance for personal manual labour or services:

the provision of plants and equipment;
the provision of additional labour or personnel; and
the provision of administrative or other services not directed at the actual work (such as preparation, drafting, typing and secretarial services).

The meaning of engaged for the purpose of the employer’s trade or business

Those who carry out the actual activities of the employer’s business are likely to be hired for the purpose of the employer’s trade or business; for example, a roof tiler sub-contractor hired by a roof tiling company. People performing activities related to the efficient operation of the employer’s trade or business, for example, a fencing contractor hired to replace fencing on a sheep station, are also likely to meet the definition.

Defining a Worker’s Status Contract for Service

A contract can be used for services for a one-time job or for an ongoing position that does not have an end date at the time the contract is signed. A typically written contract for services will define the work description and scope, the cost of the job, when payments will be made, how disputes should be handled, and other assurances. In this type of service contract, a client may pay at the start of the service, during the service, or at the end of the service.

Depending on the nature of the services being contracted, a contract for services may include a variety of different provisions, such as those relating to indemnity, liability, property return, and legal expenses, but the following details should be included in any contract for services:

Contact Information: The names and contact information of the parties involved, as well as any contract terms that require clarification, should be stated.

Description of Services: The services that will be provided should be thoroughly described. To reduce the possibility of a contract dispute later on, vagueness should be avoided to the greatest extent possible. The more detailed you make this description, the less chance you’ll have of later misunderstandings arising. For example, if the contract is for construction, the materials, equipment, and completion date should all be specified.

Terms of Payment: A compensation schedule should be included in the contract. When making a one-time payment, the amount, time, conditions, and type of payment (cash, check, etc.) must all be specified. If the payment will be made in instalments, the above information, as well as provisions for dealing with late payments, must be included.

Confidentiality, Non-Competition, and Non-Solicitation: Some may believe that including clauses that address these concerns is a good idea, depending on the nature of the services being contracted. If trade secrets and other sensitive information are involved, confidentiality (as in a non-disclosure clause) is required; non-competition and non-solicitation are required if the contractor may be able to unfairly compete or draw off business through the contract.

Ownership rights: If anything is produced during the performance of the service, whether it is a material object or intellectual property, the ownership of such items, including products of a prematurely terminated contract, should be addressed.

Information about dispute resolution: Explain how disputes can be resolved under the contract.

Contractual clauses: Some contracts contain additional information. These clauses are typically optional and will be determined by your individual circumstances. Indemnification, legal expenses, liability, property return, warranties, and any relevant insurance and/or compliance requirements are examples.

You may use a contract for services for a variety of types of jobs, gigs, and services. For examples of those defined as working under a contract for service include, contractors/sub-contractors who perform the actual activities of the employer’s trade or business i.e. catering contracts, freelance writer contracts, shipping contracts or construction contracts, manufacturing or transportation work, such as production, shipping, or storage, lawn care services, legal services, office work such as human resources, financial services, or administrative services etc.

A service contract can be used for personal or professional reasons. A contract for services, for example, can define a work agreement between a homeowner and a contractor, or between a small business and a freelance writer or photographer.

A contractor/sub-contractor may be self-employed or have an Australian Business Number, but could still be considered a worker of a person who engages them, pursuant to the Act. A contractor/sub-contractor may use their own hand tools, but if this is not a significant factor for what he/she is paid for, it will not matter for the purpose of satisfying the extended definition. In each case, if the sub-contractor does
not supply materials and does not employ any workers, he or she may be defined as being paid, in substance, for his or her personal manual labour or services and be defined as a worker. If the contractor/sub-contractor supplies significant materials and/or employs workers, then there is doubt whether he or she would be a worker under the Act.

Contract for Services or Contract for Goods

Despite the fact that both set performance standards and may include force majeure provisions, or allowances for what is commonly referred to as “acts of God,” which may delay or prevent contract completion without the service provider being at fault, a contract for services should not be confused with a contract for goods. Both impose legal obligations on the contracting parties and require a thorough review.

However, the differences between these two contracts are significant, and they include:

Contracts for Goods involve the physical delivery of goods, whereas
Contracts for Services involve the completion of tasks.

For example, goods contracts may require the negotiation of a shipping contract with a third party to transport the goods from the producer to the contracting party. Contracts for goods are governed by laws that differ from contracts for services. Seek legal advice if you are unsure whether a “contract is for services” or “contract for goods”.

Definition:

	Definition of “worker”
New South Wales	A person who has entered into or works under a contract of service or a training contract with an employer (whether by way of manual labour, clerical work or otherwise, and whether the contract is expressed or implied, and whether the contract is oral or in writing). Certain exclusions apply — s4 and s4(1), Workplace Injury Management and Workers Compensation Act 1998. In addition, s5 provides that the definitions outlined in Schedule 1 deems workers lent or on hire, some contracts and similar classes of persons to be workers.

Victoria	‘worker means an individual —who: performs work for an employer, or agrees with an employer to perform work — at the employer’s direction, instruction or request, whether under a contract of employment (whether express, implied, oral or in writing) or otherwise, or who is deemed to be a worker under this Act;’ — s3, Workplace Injury Rehabilitation and Compensation Act 2013.

Queensland	A worker is an individual who works under a contract and, in relation to the work, is an employee for the purpose of assessment for PAYG withholding under the Taxation Administration Act 1953 (Cth), schedule 1, part 2-5. (s11, Workers’ Compensation and Rehabilitation Act 2003).

Western Australia	Any person who has entered into or works under a contract of service or apprenticeship with an employer, whether by way of manual labour, clerical work, or otherwise and whether the contract is expressed or implied, is oral or in writing. The meaning of worker also includes any person to whose service any industrial award or industrial agreement applies, and any person engaged by another person to work for the purpose of the other person’s trade or business under a contract with him for service, the remuneration by whatever means of the person so working being in substance for his personal manual labour or services — s5(1), Workers’ Compensation and Injury Management Act 1981.WorkCover WA guidance: Workers’ Compensation and Injury Management: A Guide for Employers.A Technical Note on Contractors and Workers’ Compensation.

South Australia	A worker is a person by whom work is done under a contract of service (whether or not as an employee)a person who is a worker by virtue of Schedule 1a self-employed worker and includes a former worker and the legal personal representative of a deceased worker — s4, Return to Work Act 2014. Also see the definition of ‘contract of service’ and s175 and Regulation 5 — ‘Contract of service and other terms and Regulation 69 — ‘Volunteers’ (prescribed under Schedule 1)Note: regulations may exclude specified classes of workers.

Tasmania	Worker means -Any person who has entered into, or works under, a contract of service or training contract with an employer, whether by way of manual labour, clerical work or otherwise, and whether the contract is express or implied, or is oral or in writing, and any person or class of persons taken to be a worker for the purposes of the Act -and when used in relation to a person who has been injured and is dead, includes the legal personal representatives or dependants of that person or other person to whom or for whose benefit compensation is payable s3(1). The worker may include contractors (4B), participants in prescribed training programs (4D), luxury hire car drivers (4DA), taxi drivers (4DB), jockeys (4DC), and other persons prescribed to be workers (4E). The Act does not apply to any person: whose employment is of a casual nature, and who is employed otherwise than for the purposes of the employer’s trade or business, or who is an outworker, or who is a domestic servant in a private family, and has not completed 48 hours’ employment with the same employer at the time when he suffers an injury, orwho is a member of the crew of a fishing boat and is remunerated wholly or mainly by a share in the profits or gross earnings of that boat, orwho is employed by or on behalf of the Crown in right of the Commonwealth or by a person, or body, that is licensed, or taken to be licensed, under Part VIII of the Safety, Rehabilitation and Compensation Act 1988 (Cth), ornotwithstanding section s4D, who is participating in an approved program of work for unemployment payment under the Social Security Act 1991 (Cth) — and no such person shall be deemed to be a worker within the meaning of this Act — s4(5), Workers Rehabilitation and Compensation Act 1988.

Northern Territory	A worker is an individual who performs work or service of any kind for another person under a contract and in relation to the contract, is an employee for the purposes of assessment for PAYG withholding under the Taxation Administration Act 1953 (Cth) ((s3B) of the Return to Work Act 1986).

Australian Capital Territory	The Workers Compensation Act 1951 devotes an entire chapter (Chapter 3) to defining and identifying a worker in general and certain categories of workers. The Minister may additionally make a declaration to deem persons in certain occupations to be workers: An individual who has entered into or works under a contract of service with an employer, whether the contract is expressed or implied, oral or written — s8(1)(a), or workers for labour only or substantially labour only s8(1)(b), or works for another person under contract UNLESS they are paid to achieve a stated outcome, and has to supply plant and equipment, and is (or would be) liable for the cost of rectifying any defective work s8(1)(i)(a – c), or has a personal services business determination s8(1)(ii).

C’wealth Comcare	‘Employee’ — a person employed by the Commonwealth or by a Commonwealth Authority whether the person is so employed under a law of the Commonwealth or of a territory or under a contract of service or apprenticeship. Can also be covered if subject to a ministerial declaration. Also, a person who is employed by a licensed corporation if a person performs work for that corporation under a law or a contract and the person would, if the corporation were not licensed, be entitled to workers’ compensation in connection with that work — s4 and s5, Safety, Rehabilitation and Compensation Act 1988.

C’wealth Seacare	Employee — (a) a seafarer, as defined in the Navigation Act 2012, who is employed in any capacity on a prescribed ship, on the business of the ship; (b) a trainee; (c) a person required to attend a Seafarers Engagement Centre for the purpose of registering availability for employment or engagement on a prescribed ship — s4.

C’wealth DVA	Military Rehabilitation and Compensation Act 2004 (MRCA) — Member or former member of the Permanent Forces, Reserves, or cadets of the Australian Defence Force who has rendered service on or after 1 July 2004 — MRCA s5.Safety, Rehabilitation and Compensation (Defence-related Claims) Act 1988 (DRCA) — Member or former member of the Permanent Forces, Reserves, or cadets of the Australian Defence Force who has rendered service prior to 1 July 2004 — DRCA s5.

New Zealand	An earner is a natural person who engages in employment for the purposes of pecuniary gain, whether or not as an employee — s(6) (also includes employees on unpaid parental leave, self-employed persons and employees who have purchased weekly compensation and employees who ceased work in the 28 days prior to incapacity, and who had an agreement to start work within three months of the date of incapacity or within 12 months for seasonal workers).

Safe Work Australia

“Worker” or “Employee”

While no uniform definition of worker exists in Australian workers’ compensation schemes, most schemes will consider whether a person is engaged through a contract of service or is an employee for PAYG tax assessment to determine if they are a worker. The definition of the worker can be summarised by jurisdiction, noting that some schemes use the term ’employee,’ while others use the term ‘worker,’ with slightly different definitions of those terms in each scheme.

As an employee, you:

can’t pay someone else to do the work

receive payments
- for the amount of time (normally hours or shifts) you work
- for each item or for each activity you do as commission,

use tools, equipment or other assets that either
- your employer (work) gives you to do your work
- you provide to do your work, but the business you work for gives you an allowance or pays you back for the cost of the items

don’t personally pay for mistakes, the business you work for is responsible if you make a mistake and they pay for the cost of fixing it,

follow any reasonable work requests your supervisor or the business you work for makes

are seen to be part of the business and are not independent of it.

State	Definition of deemed worker
New South Wales	Schedule 1 of the Workplace Injury Management and Workers Compensation Act 1998 lists the twenty-one specific circumstances in which persons are deemed to be workers:1. workers lent or on hire1A. outworkers2. other contractors2A. contractors under labour hire services arrangements3. rural work4. timbergetters5. salespersons, canvassers, collectors and others6. tributers7. mine employees8. mines rescue personnel9. jockeys and harness racing drivers10. drivers of hire-vehicles or hire-vessels — contract of bailment11. caddies and others employed through club12. shearers’ cooks and others13. firefighters in fire districts14. workers at the place of pick-up15. boxers, wrestlers, referees and entertainers16. voluntary ambulance workers17. ministers of religion18. ministers of religion covered by policies, and19. participants in training programs.

Victoria	Circumstances under the Workplace Injury Rehabilitation and Compensation Act 2013 where a person may be deemed to be a worker:students under work experience and practical placement arrangements, apprentices, persons participating in declared training programs — Clauses 1 to 3 Schedule 1secretaries of cooperatives — Clause 4 Schedule 1door to door sellers — Clause 5 Schedule 1timber contractors — Clause 6 Schedule 1drivers of passenger vehicles — Clause 7 Schedule 1owner drivers carrying goods for reward — Clause 8 Schedule 1contractors — Clause 9 Schedule 1share farmers — Clause 12 Schedule 1declared workers of religious bodies and organizations — Clause 13 Schedule 1crown employees, Ministers, government members, judicial officers, bail justices, public corporation members, retired police reserve members — Clause 14 Schedule 1municipal councillors — Clause 15 Schedule 1persons engaged at places of pick-up for the purposes of being selected for work (e.g. fruit pickers) — Clause 16 Schedule 1jockeys and track riders, riders and drivers in mixed sports gatherings — Clauses 17 and 18 Schedule 1outworkers — Clause 19 Schedule 1.

Queensland	Circumstances under the Workers’ Compensation and Rehabilitation Act 2003 where a person may be deemed to be a worker: share farmers — Schedule 2 (1.1)salespersons — Schedule 2 (1.2)contractors and workers of contractors — Schedule 2 (1.3). workers lent or on hire (including labour hire firms and holding companies) — Schedule 2 (1.4 – 1.6).

Western Australia	Circumstances under the Workers’ Compensation and Injury Management Act 1981 where a person may be deemed to be a worker: workers lent or let on hire — s5(1)contract in substance for personal manual labour or service — s5(1)workers under an industrial award or agreement — s5(1)deceased worker — s5(1)police officer — s5(1) (Who suffers an injury and dies as a result of that injury)clergy — s8, 9 and 10tributers — s7jockey — s11Acrown workers — s14(2)certain persons deemed workers — s175AA, and working directors — s10A.WorkCover WA guidance: Workers Compensation: A Guide for Employers.

South Australia	The definition of ‘contract of service’ in s4(1) of the Return to Work Act 2014 includes a contract, arrangement or understanding under which one person (the worker) works for another in prescribed work or work of a prescribed class. Current classes of work prescribed under Regulation 5 of the Return to Work Regulations 2015, include building work (other than a wall or floor tilers)cleaning work council workers driving a motor vehicle used for the purpose of transporting goods or materials driving a taxi cab or similar motor vehicle driving or riding for a fee or reward a vehicle, other than a commercial vehicle, for the purpose of transporting by road goods or materials (including money) where the driver or rider does not simultaneously own or operate more than 1 vehicle for work purposes work as an entertainer thoroughbred riding work where the work is performed by a licensed jockey work as an outworker, and work as a licensed jockey. Under s175(2) of the Return to Work Act 2014, the Corporation may also extend the application of the Act to self-employed persons.

Tasmania	Circumstances under the Workers Rehabilitation and Compensation Act 1988 where a person may be deemed to be a worker: contractors, where the work exceeds $100 and is not incidental to a trade or business regularly, carried on by the contractor, where the contractor does not have personal accident insurance — s4Bservices of workers lent or on hire — s4Apolice volunteers ( i.e., volunteers performing police operations) — s6Avolunteers performing fire-fighting operations and fire prevention operations — s5volunteers providing ambulance services — s6port and harbour persons engaged at places of pickup — s25(4)salespersons, canvassers and collectors — s4Cluxury hire car drivers and taxi drivers — s4DA and s4DBjockeys — s4DCspecified clergymen — s3(4)participants in training programs — s4Dpersons in relationship prescribed to be the relationship between employer and worker — s4E, and prescribed classes of volunteers — s6B (none are currently prescribed for the purpose of s6B).

Northern Territory	Circumstances under the Return to Work Act 1986 and Regulations where a person may be deemed or prescribed to be a worker:● workers of householders —s3B(11)● directors —s3B(6)● jockeys — reg 3A(1)(b)● taxi drivers — reg 3A(1)(c) – None currently deemed● person performing work under a community court order —s3B(12)● Jurors — reg 3A(1)(aa)● family members —s3B(3)(4)● emergency service volunteers —S3B(8), and● volunteer firefighters —s3B(8)(b)(c)● St Johns ambulance volunteers — reg 3A(1)(a).

Australian Capital Territory	Circumstances under the Workers Compensation Act 1951 where a person may be deemed to be a worker: casuals (in certain instances) — s10regular contractors — s11(1)subcontracting — s13trainees — s14outworkers — s15timber contractors — s16family day care carers — s16Areligious workers — s17volunteers — s17Acommercial voluntary workers — s18, and public interest voluntary workers — s19.

C’wealth Comcare	Under s5(2) of the Safety, Rehabilitation and Compensation Act 1988, the following persons are deemed to be employees of the Commonwealth, provided they perform certain duties: the Commissioner of the Australian Federal Police (AFP), Deputy Commissioner of the AFP or an AFP employee person (other than a person to whom subsection (3) applies) who is the holder of or is acting in an office established by a law of the Commonwealth, or an office that is established by a law of a Territory (other than an ACT enactment or a law of the NT) and is declared by the Minister to be an office to which the SRC Act applies — s5(2). Under s5(6), certain categories of persons are deemed to be employees of the Commonwealth and the Minister may declare persons who engage in activities or perform acts at the request of the Commonwealth or a licensee as employees. This includes those undertaking work for the Commonwealth on a voluntary basis. Such volunteers, following a declaration by the Minister, are deemed Commonwealth employees for the purposes of workers’ compensation. All such declarations can be found on the Federal Register of Legislation. Under s5(15), at the request of the Chief Minister of the ACT, the Minister may make a written declaration that persons may be taken to be employees of the ACT government when engaging in certain activities — s5(15).

C’wealth Seacare	The Seafarers Rehabilitation and Compensation Act 1992 does not include any category of ‘deemed’ worker.

C’wealth DVA	Under the MRCA (s5, s7A or s8) and DRCA (s5), ‘deemed worker’ is not a legislative term, however, both Acts contain mechanisms by which a person can be taken to be a member of the Defence Force for the purposes of the legislation. In both cases, the Minister may by legislative instrument declare an individual or group who undertook certain activities to be taken to be a Member of the Defence Force (or any other kind of employee) while they were undertaking those duties. Additionally, under s5 of DRCA, a person who is a member of the Defence Force is taken to be employed by the Commonwealth and the person’s employment is taken to be constituted by the person’s performance of duties as such a member of the Defence Force.

New Zealand	An earner is a natural person who engages in employment for the purposes of pecuniary gain, whether or not as an employee — s6, Accident Compensation Act 2001.

Safe Work Australia

Deemed Worker

What the Act says: Section 175(1)
(1) “Where a person (in this section referred to as the principal) contracts with another person (in this section referred to as the contractor) for the execution of any work by or under the contractor and, in
the execution of the work, a worker is employed by the contractor, both the principal and the contractor are, for the purposes of this Act, deemed to be employers of the worker so employed and are jointly and severally liable to pay any compensation which the contractor if he were the sole employer would be liable to pay under this Act.”

The individual who is deemed to be the worker under a contractual arrangement is referred to as a “Deemed Worker”. Schemes also differ in terms of the types of workers considered to be deemed workers under the applicable workers’ compensation scheme. It can summarise the definition of a deemed worker by jurisdiction, keeping in mind that all schemes have slightly different definitions. Some jurisdictions consider certain types of contractors to be deemed, workers. When a contractor’s workers are under the control and direction of a principal contractor, the principal contractor may be held liable (along with the contractor) for the contractor’s workers. Workers’ compensation liability may also arise when a worker is employed under contractual arrangements that are intended to avoid the employer’s liability under the Act, such as requiring the worker to incorporate (form their own company) as a condition of receiving a contract.

Even if they were hired as independent contractors, some workers in certain industries are considered employees. These workers are referred to as “deemed employees.” Deemed employees are entitled to the same benefits, insurance, and treatment as regular employees.

Contractors

Contractors, as opposed to employees, own their own businesses and sell their services to others. Contractors, also known as independent contractors, subcontractors, or subbies, typically complete the work using their own processes, tools, and methods. They usually negotiate their own fees and working conditions, and they can work for more than one client at once. Contractors have workplace rights and protections, but they also have different insurance, taxation, and superannuation responsibilities.

As a contractor, you:

can pay someone else to do the work instead of you
receive all or the majority of the amount of your quote once you finish the work (to an agreed standard)
supply an invoice to the other business before they pay you
bring to the job all or most of the things (tools and equipment) you need to do your work
have to buy or hire your tools of trade or any equipment you need to do the work
are responsible for fixing your own mistakes at your own expense
can do the work in any way you like as long as you complete the work to an agreed standard, or to the specific terms in your contract or agreement
are operating your own business independently – meaning you complete the tasks or services as agreed to in your contract or agreement and are free to accept or refuse extra work.

Independent Contractor

An independent contractor is a self-employed person who provides services to clients. It is also referred to as contracting or subcontracting. Independent contractors typically register as sole proprietors and operate their businesses under their own Australian Business Number (ABN). However, you can also be a contractor who works for your own company, partnership, or trust.

Any business structure (e.g., an individual, consultant, sub-contractors, company, partnership, sole trader, trustee) that enters into a contractual arrangement with a hirer for the performance of services is considered an independent contractor. An independent contractor is an entity that agrees to produce a specific result for an agreed price. The well-known multi-factor test used by Australian courts is generally applied to determine whether a worker is an independent contractor for workers’ compensation schemes.

Independent contractors are typically hired for a specific task and invoice the client once completed. They are compensated for the results they produce and are personally responsible for whether or not their company makes a profit. You are not entitled to all of the conditions in the National Employment Standards or an award as an independent contractor. This includes minimum wages, annual and sick leave, and termination notices. Instead, with each contract, you negotiate your own rates, allowances, payment terms, and additional conditions. Independent contractors perform agreed-upon services under the terms of a contract. They usually negotiate their own fees and working conditions, and they can work for more than one client at the same time. Contractors and subcontractors are terms used to describe independent contractors.

You are legally responsible for your own work as a contractor. As a result, you will face commercial risks that you would not as a regular employee. If you are a sole trader, you may not be entitled to workers’ compensation, so it is a good idea to arrange your own personal accident protection insurance.

Independent contractors are generally not entitled to take annual or personal leave, or receive redundancy payments. Independent contracting is common in accounting, bookkeeping, engineering, freelance photography, IT, technical service, real estate, sales, truck driving, plumbing, electrical work etc.

Subcontractor

While the terms contractor and subcontractor may appear to be interchangeable, there are significant differences in how these roles operate and the nature of their agreements. Because they are businesses, contractors typically negotiate the scope of work, which may include a project timeline, work hours, services provided, and payment method.

Due to the broad scope of some projects, contractors frequently rely on subcontractors to complete specific tasks that they are unable to complete themselves, but they are still generally responsible for delivering the entire completed project to their clients. A roofing subcontractor, for example, may be hired by a building contractor to repair the roof on a home renovation project. In this case, a subcontractor agreement exists between the subcontractor and the contractor, outlining the terms of the contract agreement reached between contractors.

Some employers refuse to allow an independent contractor to hire a subcontractor. Independent contractors must discuss the possibility of hiring a subcontractor to complete a job for the client and include specifics in the contract between the client and the independent contractor. Under the Workplace Health and Safety Act of 2004, subcontractors, like independent contractors, have the right to a safe and healthy workplace. (Vic).

If an independent contractor hires a subcontractor to do work under a contract, the independent contractor may be required to pay the subcontractor superannuation or workers’ compensation. If you are an independent contractor who is unsure of your obligations or a subcontractor who is unsure of your entitlements, you should seek legal advice. While a principal may have obligations to an independent contractor (as discussed above), it is highly unlikely that it will have obligations to the subcontractor because the parties do not have a contract. This is because the subcontractor entered into a separate agreement with the independent contractor from the client’s agreement with the independent contractor.

In the multi-factor test, the following factors must be weighed and balanced:

Is it possible for an employee to set his or her working hours?
Is it necessary for the worker to provide their tools and equipment?
How is the employee rewarded?
Is the employee liable for the cost of repairing or correcting any flaws?
Is the worker liable for the cost of correcting any flaws or repairing the damage?
Is the worker required to do the work personally, or can the work be delegated?
Is the worker given the option of accepting or declining the job?

Except for the requirement of personal service, none of the other factors is conclusive. Instead, when determining the nature of a work contract, the court considers all relevant factors. Despite the fact that control is still an important factor, the High Court has stated: “It is the totality of the relationship between the parties which must be considered”.
Safe Work Australia Workers’ Compensation Coverage Paper

Principal Contractor – Only applicable in the construction industry

The role of the principal contractor is critical in managing the work health and safety risks on construction projects. A principal contractor is a legal entity in charge of construction health and safety management. The procedures for appointment or engagement, as well as the obligations of principal contractors, differ between the Commonwealth, states, and territories. The requirement to appoint or engage a principal contractor can have a significant impact on property owners, tenants, developers, and contractors. The engagement of a principal contractor is fundamental to managing WHS risk in construction projects.

Engaging a principal contractor

A principal contractor is a person conducting a business or undertaking (PCBU) who commissions construction work valued at $250,000 (SA is $450,000 or more) (often referred to as the client). A client, on the other hand, can appoint another PCBU as a principal contractor by authorising them to have management or control of the workplace where the construction work will take place. It is recommended that any authorisation or appointment regarding the principal contractor be documented and signed by the relevant parties to ensure a clear definition of roles.

The Work Health and Safety Regulation 2011 (WHS Regulation) defines a construction project as any project that involves construction work where the cost is $250,000 (SA – $450,0000) or more. Work valued at less than $250,000 (SA – $450,000) is not considered a construction project. However, in this situation, the contractor would not inherit the additional duties of a principal contractor under part 6.4 of the WHS Regulation. A client can authorise a contractor to have management or control of a workplace for construction work that is valued at less than $250 000 (and is therefore not a construction project).

PCBUs who commission construction work must understand their obligation to influence safety through agreements and arrangements with the person hired to do the work. This includes inquiring about how the work will be done to ensure that any potential hazards are adequately controlled.

Principal contractors for construction work valued at $250,000 or more

In addition to their duties as a PCBU, each construction project will have a principal contractor who has specific duties under the WHS Regulation. A construction project encompasses all aspects of the construction process. The contract price for carrying out the work determines the cost of construction work. Project management costs, fittings and furnishings costs, and any taxes, levies, or charges payable in connection with the work, excluding GST, would all be included.

What is a Construction Project?

A construction project encompasses all aspects of the construction process. The contract price for carrying out the work determines the cost of construction work. Project management costs, fittings and furnishings costs, and any taxes, levies, or charges payable in connection with the work, excluding GST, would all be included.

The cost of the construction work should not include:

the cost of the land on which the development is to be carried out
the costs associated with marketing or financing the development, including interest on any loans
the costs associated with legal work carried out or to be carried out in connection with the development.

Principal contractors are governed by different legislation

Harmonised jurisdictions

Under the harmonised legislation, the provisions relating to a principal contractor only apply to a ‘construction project’ which is defined as a project that involves construction work with a value equal to or exceeding $250,000 and in South Australia, it is $450,000.

Commonwealth
Work Health and Safety Act 2011 (Cth) and the Work Health and Safety Regulations 2011 (Cth)
Australian Capital Territory
Work Health and Safety Act 2011 (ACT) and the Work Health and Safety Regulation 2011 (ACT)
New South Wales
Work Health and Safety Act 2011 (NSW) and the Work Health and Safety Regulation 2011 (NSW)
Northern Territory
Work Health and Safety (National Uniform Legislation) Act 2011 (NT) and the Work Health and Safety (National Uniform Legislation) Regulations 2011 (NT)
Queensland Work Health and Safety Act 2011 (Qld) and the Work Health and Safety Regulation 2011 (Qld)
South Australia
Work Health and Safety Act 2012 (SA) and the Work Health and Safety Regulations 2012 (SA)
Tasmania Work Health and Safety Act 2012 (Tas) and the Work Health and Safety Regulations 2012 (Tas).

Non-harmonised jurisdictions

Victoria
Occupational Health and Safety Act 2004 (Vic) and the Occupational Health and Safety Regulations 2007 (Vic)
Western Australia
Occupational Safety and Health Act 1984 (WA) and the Occupational Safety and Health Regulations 1996 (WA).

Harmonised jurisdictions – only apply to a ‘construction project’

Any development of a building or structure that involves alteration, building, conversion, fitting out, renovation, refurbishment, decommissioning, or demolition is considered construction work. It is critical that you appoint a principal contractor correctly; otherwise, you will be considered the default principal contractor. This will impose a number of obligations on you to manage OHS issues throughout the construction project. As a result, the risk of facing legal consequences for failing to meet these obligations will rise.

If you own residential property where construction is taking place and hire someone to manage the workplace, that person will be considered the principal contractor. An individual may hire a PCBU to work on their residential property either directly or indirectly. If the person hired to complete the construction project has management or control of the workplace, they become the principal contractor.

Victoria

If the construction project is worth $350,000 or more and the contract to perform the construction work was entered into on or after July 1, 2014, you must appoint a principal contractor in Victoria. (or $250,000 or more if the construction contract for the project was signed prior to July 1, 2014). As an owner commissioning construction work in Victoria, you will have few responsibilities. This is a significant distinction between Victorian OHS law and the rest of Australia’s work health and safety legislation.

However, to the extent that you have control or management of the workplace, you must ensure that the workplace and the means of entering and leaving it are safe and free of health risks. This means that if you hire a builder to do office fit-outs and the builder does not have complete control or management of the workspace, you must still comply with this requirement.

For example, you may have hired a builder to do office fit-out work on the premises while still occupying and using a portion of the space. This means you have control over a portion of the site and must follow this regulation. You should make sure that your contract with the builder specifies who has control of the workplace.

If you have appointed another person as the principal contractor, you could still face a penalty for your remaining obligation, as outlined in the table below.

Obligation	Penalty if you are an individual	Penalty if you are a company
To the extent that you have control or management over a workplace, you must ensure that the means of entering and leaving the workplace are safe and pose no health risks.	$297,396	$1,486,980

Figures at the time of printing

The Vic Regulations automatically consider the owner of the workplace where the construction work is to be done to be the principal contractor. The owner may appoint another person as the principal contractor, but that person must be authorised by the owner to manage or control the workplace to the extent necessary to discharge the duties of the principal contractor. Although not required, an owner should appoint a principal contractor in writing.

The Vic Regulations make no restrictions on who can be appointed as a principal contractor. In the case of domestic construction work, however, if an owner hires someone to manage or control the workplace, the owner is automatically deemed to have appointed that person as the principal contractor.

As in the harmonised jurisdictions, there is no obligation to appoint a principal contractor. If an owner fails to appoint a principal contractor, the owner is taken to be the principal contractor.

Western Australia

Every construction project (with a value of $250,000 or more) must have a principal contractor, according to the harmonised legislation. According to the harmonised legislation, the person conducting a business or undertaking (PCBU) who commissions the construction project is the project’s principal contractor unless the PCBU:

engages another person conducting a business or undertaking as principal contractor for the project; and
authorises the principal contractor to have management or control of the workplace and to discharge its duties.

If this occurs, the person hired becomes the project’s primary contractor. The Western Australian regime employs the concept of a “main contractor.”

The main contractor is:

someone for whose direct benefit the work is done; or
a person engaged by the person referred to above to cause the construction work to be done but is not an employee.

When a PCBU hires another person to be the project’s principal contractor, the PCBU must provide the new principal contractor with any information they have about hazards and risks in the vicinity of the workplace where the construction work is to be done.

When small business owners (principals or main contractors) hire independent contractors, they have a duty of care under Section 19 of the Occupational Safety and Health Act 1984 to ensure the contractors’ safety and health (the OSH Act). Specifically, if the contractors will be exposed to hazards and risks associated with performing tasks on behalf of the company, a safe system of work must be prescribed for them. Contractors are a part of the work system that the principal is directly responsible for. As a result, the law requires that the principal’s duty to the contractors be the same as an employer’s duty to its employees (section 23D of the OSH Act).

The “hands-off” approach with contractors

Some companies believe that by avoiding liability for safety and health responsibilities, they can avoid liability if contractors cause work-related injuries and incidents to themselves, their employees, or third parties. This could be wrong. Under the duty of care, everyone in the workplace is accountable for safety and health. Regardless, the extent of the parties’ responsibilities is determined by their level of control over the situation. In cases where the principals demonstrated sound risk management practices and a safe system of work, the courts were more lenient. The ‘contract conditions’ forbid principals from delegating responsibility for workplace safety and health to contractors.

The “main contractor” is not strictly appointed but is determined by the Regulations

In Western Australia, the “main contractor” is not strictly appointed but is determined by the Regulations. In addition to any “deemed” main contractors, the WA Regulations require designers, clients, and employers to consult with one another to ensure that the construction work can be completed safely and healthfully. The main contractor and the client may be the same person, depending on the nature of the contracting arrangements and the specific circumstances of the project. In that case, the client must follow the WA Regulations’ main contractor and client requirements.

There is no requirement to appoint a principal contractor, and unless another PCBU is engaged, the harmonised legislation states that the PCBU that commissions the project is the default principal contractor. Failure to appoint a principal contractor has no other ramifications.

The WA safety legislation imposes a number of duties and obligations on a principal who is deemed to be the “main contractor” by the legislation. Some of these responsibilities are shared (for example, between the principal and the site supervisor), while others fall solely on the main contractor. While these responsibilities are not always onerous, noncompliance is an OHS violation that can result in a monetary penalty.

If there is a safety incident (especially one involving serious injury or death), a violation of a “main contractor” obligation may be compelling evidence of a violation of one of the Act’s broader safety duties.

Breach of these can attract a much higher monetary penalty:

up to $500,000 for a first offence, and
$625,000 for subsequent offences at the time of printing.

There can only be one principal contractor at any time in relation to a construction project.

Section 293 of the WHS Regulation states that a construction project can have only one principal contractor at any specific time.

First, at any given time, a construction project can only have one primary contractor. The conceptual basis for this is obvious. Because the principal contractor has management or control of the workplace, it would be inconsistent if that power was conferred on more than one PCBU at any given time. However, there are a few considerations that arise from this rule. To begin, there is nothing preventing more than one principal contractor from being engaged in a project as long as no more than one is engaged at any given time during the project’s life. A primary contractor may “pass the baton” to another (although, as discussed above, the engagement of any principal contractor must be made by the default principal contractor). If more than one principal contractor is hired, it is critical that there is a clearly defined time when the principal contractor changes, as well as an effective transition protocol in place to implement the change.

Second, there may be room for a definition of “project” that is narrower than the colloquial or even commercial use of the term to be legitimately adopted for the purpose of WHS Regulations (although there is value in consistency, which should always be an objective). For example, there could be a number of projects within a larger program of works, allowing the appointment of multiple principal contractors for the program but only one for each “project” in accordance with the WHS Regulations.

Projects being undertaken side-by-side (or in proximity)

Where projects are being undertaken side by side (or in proximity) with different principal contractors as part of a program of works, it is critical that all of them comply with the WHS Act’s requirement for each PCBU to consult, cooperate, and coordinate activities with the others as far as reasonably practicable. Consideration must be given, for example, to the management of common access and egress points to each project workplace.

Two or more construction projects and intends to appoint different principal contractors to each one

When a client commissions two or more construction projects and intends to appoint separate general contractors for each, it is critical that the workplaces associated with each construction project be defined as separate and distinct. At any given time, only one PCBU can manage or control a specific workplace.

Two construction projects take place right next to each other, either on completely separate projects or as part of a larger program of work. A bridge, for example, is one construction project, and approaching road works is another. Or the refurbishment of a structure as one construction project and the installation, maintenance, or repair of a significant piece of plant within the structure as another construction project.

Each principal contractor’s management or control must be clearly defined in each construction project. This is best accomplished by utilising physical boundaries (such as a fence) or visible markers (e.g. signs). Where physical separation or visual demarcation of a boundary between the two construction projects is not possible or practical, both principal contractors must be able to demonstrate:

how risks associated with workers or others crossing the boundary between the two construction projects are identified and managed

how the duty to ensure that the workplace is secured against unauthorised access is met.

Each principal contractor must have a contract with the client and cannot be a subcontractor to another. To ensure that risks to health and safety are managed, each PCBU (the principal contractor, any subcontractors, and the client) must consult, coordinate, and cooperate with one another. This is a shared responsibility between the parties and must be completed both before and during the work.

Responsibilities of principal contractors

You must put up prominent signs with your name, emergency contact information, and the location of the site office as the major contractor. Before work begins, you must also create a work health and safety management strategy that includes the following:

The arrangements you have for consultation, cooperation, and coordination of activities with individuals who have work-related health and safety obligations at the site, the plans in place should a health and safety event occur, and site-specific health and safety regulations, the plans for the collection, assessment, monitoring, and review of SWMSs, as well as the plans for ensuring that everyone at the workplace is aware of those regulations.

If the plan is not reviewed, updated, and workers are not informed of the contents of the plan and their right to check it prior to the start of work, penalties may be imposed. Keep a copy of the plan on hand for workers to review and easily accessible until the project is finished, or for at least two years if there is a reportable ‘notifiable incident’.

The principal contractor is responsible for:

workplace management and control (including on-site work coordination)

risk management associated with construction work

ensuring that the workplace is secure from unauthorised access

preparing and maintaining a workplace health and safety management plan (or a ‘health and safety coordination plan’ in Victoria), informing workers about the plan, reviewing and revising it as needed

obtaining a copy of (or, if the principal contractor is the PCBU, preparing or procuring) a safe work method statement (SWMS) for all “high risk” construction work. Work involving a risk of a person falling more than 2 metres, demolition, removal, or disturbance of asbestos, working in confined spaces, and any movement of the powered mobile plant is considered high-risk (among others). The SWMS must be followed and reviewed as needed,

installing signage identifying the primary contractor on the job site, and

ensuring that each person performing construction work in connection with the project is aware of the content of the workplace work health and safety management plan, as well as the person’s right to inspect the work health and safety management plan prior to the start of work.

In harmonised jurisdictions, these obligations arise as a result of the party’s position as the principal contractor. In Victoria, it is the responsibility of the principal contractor as well as the person in charge of managing and controlling a workplace to ensure that it is safe and free of health hazards.

The harmonised jurisdictions impose additional prescriptive requirements for workplace health and safety, requiring the principal contractor to ensure that the workplace has adequate arrangements for:

appropriate facilities, as well as ensuring that the facilities are well-maintained and easily accessible
first-aid supplies
a contingency plan
personal protective equipment
managing the risk of airborne contaminants; managing the risk of using and storing flammable to combustible substances
minimising the dangers of falling objects and falls
material storage, movement, and disposal
Plant storage and traffic management.

The main contractor will also be responsible for the following duties, which it may share with other duty-holders at the same workplace:

coordinating with building designers; addressing concerns unique to demolition activity (including getting current subterranean,

prior to directing or approving the start of excavation activity and securing trenches, providing critical services information,

guaranteeing that all workers engaged in construction activity have general construction induction training (sometimes known as a “green card”).

Depending on the duty holder’s position in relation to the task being performed, the details of each duty holder’s obligations may vary. These obligations are non-delegable and cannot be waived by a party through a contract (though a contract may clarify the roles and expectations of the various duty holders). Failure to uphold the pertinent obligations carries consequences.

In simple terms:

Employees work in your business and are part of the business

&

Contractors run their own businesses and provide services to your business

Licensing

If you’re a contractor, you may require a licence or other qualifications to perform certain work. For example, if you want to do electrical work in Australia you must hold the correct licence.

Tax & Superannuation

Generally, contractors and subcontractors are not paid super by their clients. However, if an individual contractor provides personal labour or skills to a company, the contractor may be entitled to super on top of their fee, even if they quote an ABN. If the contractor does not provide an ABN, the principal is required to withhold 46.5% of any payments and report these to the ATO. A contractor who is not registered for GST should not charge you GST.

When is a contractor more like an employee than a contractor? If a contractor is hired on an ongoing basis by a business and is paid primarily for their labour, they may be considered an employee for super purposes. The work, however, must be done by the contractor himself and not delegated to a subcontractor. Similarly, if the contractor is a company and one of its employees does the work for the client, the client does not pay super.

Employers in Australia generally have to pay a proportion of their workers’ wages into a superannuation (super) fund to help them save for retirement. If you’re a contractor you may still be entitled to super from your employer. If you’re a contractor paid wholly or principally for your labour, you’re considered an employee for super purposes. You’ll be entitled to super from your employer under the same rules as employees.

There is one exception to this rule. If your contractor is paid entirely or primarily for labour services, they have the same right to super-guaranteed contributions as employees. To avoid penalties, you should consider whether your contractor falls into this category.

According to Fair Work Australia, when determining whether your contractor is paid entirely or primarily for their labour services, you must consider whether they are:

paid entirely or primarily for their personal labour and skills;
performing their services personally; and
paid for hours worked rather than results.

The most common error is assuming that a contractor does not require super. It’s a simple mistake to make, but it can be costly if a company gets it wrong because the ATO makes it simple to work out the difference.

Other errors to avoid are:

Paying the contract’s total value in super when a portion of it is not labour,

Direct payment of the 10.5% super guaranteed to the contractor to comply with the provisions of the Super Guaranteed laws, the super payment must go to a super fund.

Paying a contractor’s super when they aren’t doing the work themselves Long-term contractors frequently experience this, where they first performed the task individually but gradually changed the arrangement.

Medicare Levies

Medicare levy payments must be made at a rate of 2% of your contracting income. This levy is in addition to any income tax that may be due on taxable income. You may be eligible for a reduction or exemption from Medicare levies depending on your or your spouse’s circumstances, making professional assistance worthwhile.

Medicare levies fund three types of coverage: hospitalisation, medical care, and pharmaceuticals. It is critical that you understand what Medicare does and does not cover. The website PrivateHealth.gov.au has a wealth of information to help you understand what your Medicare levies will cover. If you earn more than a certain amount and do not have private patient hospital coverage, you may be subject to the Medicare Levy Surcharge (MLS) in addition to the base Medicare levy.

Pay-as-you-go (PAYG) instalments

PAYG instalments help you or your business to meet your income tax obligations. PAYG instalments are regular payments you make (usually each quarter) towards your expected income tax obligation. PAYG instalments are generally paid by contractors who earn a certain amount of income. The ATO will write to tell you if you must pay PAYG instalments.

Goods and services tax (GST)

You’ll be required to file regular BAS returns every two months and make GST payments to the ATO. Registering for GST requires you to charge your clients 10% more for your services and to pass this additional income directly to the ATO. If you have eligible business deductions, you can claim the GST portion of those expenses and use it to offset the GST you owe the ATO on your income. When claiming business expenses, you must also keep receipts for 7 years as records.

If you’re registered for GST, the services you provide will be subject to GST. You are required to register for GST if:

your business has a GST turnover of $75,000 or more
your non-profit organisation has a GST turnover of $150,000 or more
you provide taxi travel (including ride-sourcing services like Uber, GoCatch or Ola) regardless of your GST turnover
you want to claim fuel tax credits for your business

GST is a tax that is added to your income; it does not replace or eliminate the need for you to pay Income Tax on your earnings.

Are apprentices and trainees employees or contractors?

For tax and superannuation purposes, apprentices and trainees are considered employees. Employers must meet their obligations for pay-as-you-go withholding tax, superannuation, and fringe benefits tax.

Australian business number (ABN)

As a contractor, if you do not have an ABN before doing work, your hirer may legally withhold the top rate of tax, plus the Medicare levy, from your payment. Labour hire workers aren’t entitled to an ABN, so you need to check if you’re entitled before applying.

You must register for an ABN for certain activities, such as taxi driving or providing ride-sourcing services through the sharing economy. The sharing economy is an economic activity through a digital platform (such as a website or an app) where people share assets or services for a fee.

If you provide services or assets through a platform for a fee, you need to consider how income tax and goods and services tax (GST) applies to your earnings.

Define – Sole Trader | Partnerships | Trust

A sole trader does not have a corporate structure and does not collaborate with others. A sole trader is a person who does business under their name or a registered business trading name and has their own ABN (Australian Business Number).

Partnerships, like sole proprietorships, lack a corporate structure and are formed by two individuals who operate under both individual partnership names or a registered business trading name, as well as having their own ABN (Australian Business Number). Any of Australia’s states or territories do not cover a business that operates through a Trust and the Trustee is either an individual or a partnership. This type of policy only covers its employees and contractors who are classified as employees under the ‘Contractor Provision’.

Check to see if the person doing the work for you fits all or most of the descriptions below.

On a continuous basis, the person works under your direction and control.

Under your supervision, the person usually works standard or set hours.

The individual cannot subcontract or delegate the contract work or pay someone else to do it.

You must pay for the work based on the time worked, a price per item or activity, or a commission rather than the result achieved based on the quote provided.

You provide all or most of the equipment, tools, and other assets needed to complete the contract work, or you give the sole trader an allowance or reimburse him.

The sole trader does not operate independently of your company, but rather works within it and is considered a part of it.

If all or most of the aforementioned factors apply to the working agreement or contract, the WorkCover Authority in your state will most likely consider the sole trader or partnership to be your worker. However, none of these variables is conclusive. Your WorkCover Authority will also consider your relationship with the person performing the work.

The rights and responsibilities of a contractor, subcontractor, and independent contractor.

Contractors have different workplace rights and protections from employees. Whether you’re a contractor or you hire contractors, it’s important to understand the different rules.

Under the Fair Work Act 2009, independent contractors are protected from:

Adverse action

Adverse action can include being sacked or fired (dismissed), being demoted and being overlooked for promotion.

Adverse action is an action that is illegal if taken for specific reasons. for example, a business cannot terminate a contract with an independent contractor because they make a complaint to a regulator about their workplace rights. A number of actions are defined as adverse actions under the FW Act.

A person’s adverse action includes doing, threatening, or organising any of the following:

an employer dismissing an employee, injuring them in their employment, altering their position to their detriment, or discriminating between them and other employees,

an employer refusing to employ a prospective employee or discriminating against them in the terms and conditions the employer offers,

a principal terminating a contract with an independent contractor, injuring them or altering their position to their detriment, refusing to use their services or to supply goods and services to them, or discriminating against them in the terms and conditions the principal offers to engage them on,

an employee or independent contractor taking industrial action against their employer or principal,

an industrial association, or an officer or member of an industrial association, organising or taking industrial action against a person, or taking action that is detrimental to an employee or independent contractor,

an industrial association imposing a penalty of any kind on a member.

The FW Act prohibits a person from taking adverse action against another person because that person:

has a workplace right,
has or has not used a workplace right,
proposes to, or proposes not to, use a workplace right,
does or does not belong to a trade union,
engages or does not engage in the industrial activity (as set out previously).

Adverse action does not include:

action that is authorised by or under the FW Act or any other Commonwealth law,
an employer standing down an employee who is engaged in protected industrial action,
an employer standing down an employee who is employed under a contract of employment that provides for the employer to stand down the employee in the circumstances.

Coercion

Coercion is defined as a person who must not organise or take, or threaten to organise or take, any action against another person with the intent to coerce the other person, or a third person, to engage in industrial activity. For example, a business cannot threaten to take action against an independent contractor to coerce them not to exercise their workplace rights

It is unlawful for a person to organise or take action (or threaten to) with the intent to coerce another person or third party to:

use or not use a workplace right, or use it in a particular way
take part in industrial activity
employ or not employ a particular person
engage or not engage a particular independent contractor
allocate or not allocate certain duties or responsibilities to a particular employee or independent contractor
give a particular employee or independent contractor certain duties and responsibilities.

See section 343 of the Fair Work Act 2009.

Misrepresentation

A person must not purposefully make a false or misleading representation about another person’s duty to engage in industrial activity or another person’s duty to disclose whether they or another person, are or were members of an industrial association or had any involvement in industrial activity. An employer, for example, cannot claim the right to know whether an employee is a member of a union. Independent contractors can choose whether or not to join a union or employer group.

A person must not knowingly or recklessly make a false or misleading representation about:

the workplace rights of another person
the use, or the effect of the use, of a workplace right by another person
another person’s obligation to take part in industrial activity
another person’s obligation to tell anyone whether they or a
third person:
- is or is not an officer or member of an industrial association
- is or is not taking part in industrial activity.

Misrepresentation to engage as an independent contractor

A person (the employer) who employs, or has ever employed, an individual to perform specific work must not make a false statement in order to persuade or influence the individual to enter into a ‘contract for services‘ under which the individual will perform the same, or substantially the same, work for the employer as an independent contractor. An employer cannot knowingly attempt to persuade an employee to perform the same work they did as an employee as an independent contractor by making a false statement.

For example, an employer may not tell an employee that they can perform their job as an independent contractor and pay less tax as long as they obtain an ABN in order to induce the employee to perform the same work as an independent contractor if the employer knows that statement is false.

See section 345 of the Fair Work Act 2009.

Undue influence or pressure

Undue influence or pressure is when an employer exerts significant or inappropriate pressure on an employee to modify or alter their conditions of employment. For example, an employer must not pressure an employee to agree to an individual flexibility arrangement.

These provisions do not require coercion, but there must be some conduct that amounts to the exercise of influence or pressure in order to force an employee to act in a certain way. The provisions establish a lower bar than coercion. The prohibition applies when an employer makes an agreement with an individual employee (rather than a group of employees) and the employer is expected to take care not to put significant and inappropriate pressure on the employee to make the agreement.

Undue behaviour is defined as “unwarranted; excessive; too great” or “not proper, fitting, or right; unjustified.” The definition of ‘influence’ is “to move or impel to, or do, something.”
Harassment or oppression are examples of ‘pressure.’

It is unlawful for an employer to force or try to force an employee to:

make or not make an agreement or arrangement under the National Employment Standards (which commenced operation on 1 January 2010),

make or not make an agreement or arrangement under a term of a modern award or enterprise agreement that is permitted to be included in the award or agreement,

agree to or terminate an individual flexibility arrangement under an enterprise agreement or modern award,

accept a guarantee of annual earnings,

agree or not agree to a deduction from amounts payable to the employee in relation to the performance of work.

The undue influence or pressure or coercive behaviour can be unlawful even if it does not succeed in making the person take or not take the action.

See section 344 of the Fair Work Act 2009.

General protections provisions

When it comes to workplace rights, general protection laws protect the majority of people from harmful (adverse) actions, coercion, undue influence or pressure, and misrepresentation. The Fair Work Act’s laws apply to the majority of employees and businesses. The law protects you in various ways. The majority of people are eligible to apply. When someone applies under general protection laws, they begin a legal process.

In most common case is about adverse action. In this case, the person who applies must show they are eligible to apply and someone took adverse action against them for a prohibited reason. For example, an employee may be able to apply if their employer dismisses them (takes adverse action) and because they were away from work when sick (prohibited reason for dismissing someone).

General protection laws protect your rights at work. The laws apply to most employers as well as employees, potential employees, and independent contractors.

There are 2 types of general protection applications. The type of application depends on whether you have been dismissed:

Protection dismissal
General protections no dismissal

General protection dismissal applications are the most common. These make up 85% of the applications FWO receives. This is where you have been dismissed for a reason prohibited by law.

What are the prohibited reasons?

A person cannot take adverse action for an illegal reason (prohibited). This can include taking action against you because you exercised your workplace rights (such as taking leave), because of your age, gender, disability, or other discriminatory reason, or because you are unable to work due to illness or injury.

See sections 340-358 of the Fair Work Act 2009.

These laws forbid someone from taking harmful (‘adverse’) action for specific reasons. The law states that someone cannot take harmful (‘adverse’) action against you for an illegal reason. This page lists the most commonly prohibited reasons. The Fair Work Act specifies all of the prohibited reasons below:

Long periods of sick leave:

Employees who are fired because they are temporarily absent from work due to illness or injury may be able to reapply. If this happens to you, you may be able to apply for general protection dismissal. Learn more about long periods of sick leave on the website of the Fair Work Ombudsman.

Section 352 of the Fair Work Act 2009 and Regulation 3.01 of the Fair Work Regulations 2009

Discrimination

The law protects employees and potential employees from workplace discrimination. If your employer discriminates against you because of your characteristics, you may be able to apply under general protections (attributes). Unlawful workplace discrimination occurs when an employer takes adverse action against an employee or prospective employee because of one or more of the following characteristics of the person: race, colour, sex, sexual orientation, age, physical or mental disability, marital status, family or caregiver responsibilities, pregnancy, religion, political opinion, national extraction, or disability.

When adverse action is taken because of discrimination

Employees and potential employees are protected from workplace discrimination. Employers who take harmful (‘adverse’) actions as a result of discrimination may be in violation of general protection laws.

An employer may break general protections laws if they:

dismiss an employee because of their features or attributes
don’t hire someone because of their features or attributes
treat a person differently from others because of their features or attributes
offer an employee worse terms than other employees because of their features or attributes
don’t give a worker their legal entitlements because of their features or attributes
change an employee’s job in a way that has a negative effect because of their features or attributes
take or threaten to take adverse action to force an employee to do something because of their features or attributes.

Note: The word ‘because’ is important in a dispute or case about general protections. You may be able to ask us to resolve a dispute if you believe your employer or potential future employer has taken an adverse action and the reason is discrimination.
Fair Work Ombudsman

See section 351 of the Fair Work Act 2009

Workplace rights

A workplace right might be the right to ask about your rate of pay or to make a complaint or enquiry about your employment.

You may be able to apply under the general protections if adverse action has been taken against you:

because you have a workplace right
because you used a workplace right
because you say you will use a workplace right
to stop you from using a workplace right
because another person says they will use a workplace right for your benefit.

See section 340 of the Fair Work Act 2009.

Industrial activities

The law protects your right to participate (or not participate) in industrial activities. You can choose to join (or not join) an industrial association.

This includes unions and employer associations. If a person:

takes adverse action because a person is (or is not) involved in industrial activities (see below)
coerces another person to be involved in industrial activity
makes misrepresentations about a person’s
- obligation to engage in industrial activity
- obligation to disclose information about membership to an industrial association
- obligation to disclose information about engaging in industrial activities

induces their employees to become a member of an industrial association
induces their employees to stop being a member of an industrial association.

Industrial activities include:

being a member of an industrial association
becoming involved in establishing a union or employer association
organising or promoting lawful activities of a union or employer association
encouraging participation in a lawful activity for a union or employer association
complying with a legal request made by a union or employer association
representing the views, claims or interests of a union or employer association
paying a fee to a union or employer association
seeking to be represented by a union or employer association.

See: sections 346-350 of the Fair Work Act 2009.

Sham contracting

The majority of employees are protected from shame arrangements. An employer is not permitted to inform an employee that they have been hired as a contractor. An employer may not fire or threaten to fire an employee in order to hire them as an independent contractor to do the same or similar work. This illegal practice is where a person working as an employee is told they are an independent contractor when they are not, the Fair Work Act 2009 can penalise an employer up to $66,600.

See sections 357-359 of the Fair Work Act 2009 & ‘Sham contracting arrangements‘

Employees and “potential” employees

Most employees are protected by general protection laws. A person who has an employment contract with an employer is referred to as an employee. They are paid by their employer. The employee could be full-time or part-time, casual, or on a fixed-term contract.

The general protections laws cover people who are:

current employees
“potential” employees (such as job applicants).

You are not an employee if:

you are an independent contractor or subcontractor
you are not paid for the work you do (such as a volunteer or unpaid intern)
you are a sole trader.

Employers and “potential” employers

The general protection laws apply to both current and prospective employers. A “potential” employer is typically someone who interviews applicants for job openings.

Employees of recruitment agencies and labour-hire companies

Only the agency can dismiss you. You cannot start a claim for dismissal against the host. For applications about dismissal under general protections, you must give details of the agency that pays you and the company you do the work for.

If you work through an agency:

your employer is the agency (the ‘principal’) and they pay you
the company you do work for is your ‘host’.

Contractors

The general protection laws cover independent contractors who have a dispute with a company or person. Contractors and sub-contractors cannot start a claim for dismissal because you have a contract to provide services, not an employment contract.

Note: different businesses may use the term ‘contractor’ in different ways.
Fair Work Ombudsman

Businesses that must follow the laws

Constitutionally-covered businesses must follow the general protection laws. This includes:

a constitutional corporation
- most proprietary limited (Pty Ltd) companies
- foreign corporations incorporated overseas
- trading or financial corporations formed within Australia

a body corporate incorporated in a territory of Australia

the Australian Government

a Commonwealth authority, which means:
- a body corporate established for a public purpose by or under a Commonwealth law, or
- a body corporate incorporated under a Commonwealth, state or territory law where the Commonwealth has a controlling interest in that body
- a business or organisation conducted principally in a territory of Australia or a place acquired by the Commonwealth for public purposes.

Businesses that may not be covered

Your workplace may not be covered by the general protections if it is:

a sole trader or partnership in Western Australia
a state government department (except in Victoria)
a non-corporate state public sector agency (except in Victoria)
a local government body that is not a corporation
a local government body not engaged in trading or financial activities.

Fair Work Ombudsman Commission Investigation

The FWO can investigate allegations of contraventions of the general protection provisions. Penalties in excess of $13,000 (for an individual) or $66,000 (for a company) can apply for contraventions of the general protection provisions. Penalty amounts are subject to change. You can check the current maximum penalties at www.fairwork.gov.au.

If general protections do not cover you

You may be able to apply for Unlawful termination if these laws do not protect you and you have been dismissed from your job. Other help may also be available:

anti-discrimination laws in all states and territories
the organisation of the industrial relations in your state or territory:
- ACT – you are part of the national workplace relations system
- NSW – Industrial Relations Commission NSW
- NT – you are part of the national workplace relations system
- Qld – Queensland Industrial Relations Commission
- SA – South Australian Employment Tribunal
- Vic – you are part of the national workplace relations system
- WA – Western Australian Industrial Relations Commission
- Tas – Tasmanian Industrial Commission

The Fair Work Commission (FWC) can also deal with alleged contraventions of the general protection provisions.

There are two main types of applications:

disputes – if a person has not been dismissed, but alleges that there has been some other contravention of the general protections provisions, they may make an application to the FWC to deal with the dispute;

dismissals – if a person believes they have been dismissed and alleges that their dismissal was in contravention of the general protection provisions, they should make an application to the FWC to deal with the dismissal in the first instance. A general protection dismissal application must be lodged within 21 days of the dismissal taking effect.

It is your responsibility to determine whether or not your contractors are classified as workers by WorkSafe. If they are, your total remuneration may be affected, which is one of the key factors influencing your premium and whether you need to register for WorkCover insurance. If your total annual salary exceeds $7,500, you must register for WorkCover insurance in the NSW, VIC, QLD and SA (threshold indexed each year). State in TAS, NT, WA and ACT must register for WorkCover if you pay any wages.

When you hire a contractor, you must first determine whether they are considered a “worker” by WorkSafe. If the person is classified as a worker, you effectively become their employer for WorkCover insurance purposes, and the money you pay them must be included in your total remuneration.

Employees and independent contractors have different rights and obligations. This is because they provide services to another person or business rather than working for that person or business. This means that distinguishing between the two is critical. A mutual obligation is required in an employment relationship. In other words, one person is required to perform work (the employee), and the other person is required to pay for that work (the employer). When determining whether a person is an employee or an independent contractor, the court considers the entire relationship between the parties.

Contractor Protections and Rights

The Act protects Independent Contractors’ workplace rights even if they own their own businesses. The general safeguards protect both the previously hired independent contractor and the person who hired them to provide services (the principal), as well as the contractor whom the principal plans to hire. Independent contractors and prospective contractors are protected from coercion, retaliation, and violations of free association when they exercise a workplace right or engage in industrial activities.

Under the Workplace Health and Safety Act of 2004, independent contractors have the right to a safe and healthy workplace (Vic). Depending on the terms of the contract and the engagement, independent contractors may be entitled to superannuation contributions and workers’ compensation protections.

Contractors’ workplace rights and responsibilities include any responsibilities imposed by workplace law. Contractors can file a complaint or enquiry, or initiate a process or proceedings, to seek compliance with workplace law.

The principal takes adverse action against a (proposed) independent contractor if the principal threatens or takes action in response to the exercise of a protected right (for example, a workplace right or the right to engage in industrial activity) by:

refusal to hire the independent contractor or contract termination
discriminating against the independent contractor in the terms or conditions under which the principal offers the independent contractor employment
inflicting harm on the independent contractor due to contract terms and conditions
changing the independent contractor’s position to the independent contractor’s disadvantage
refusing to use or agree to use the services provided by the independent contractor
refusing to supply goods or services to the independent contractor or agreeing to supply goods or services to the independent contractor.

However, keep in mind that the principal is protected from the independent contractor if the principal exercises a workplace law right and the independent contractor threatens or takes action by halting contract work or taking strike action against the principal.

Employers must ensure that workers’ compensation insurance covers all employees for work-related injuries.

Contractors and subcontractors who are defined as workers under the Workers’ Compensation and Injury Management Act 1981 may also be entitled to workers’ compensation (the Act).

As an employer, you must understand the common factors that determine whether a person is an employee or an independent contractor such as how much control does the employee have over their work? The authority to delegate tasks to others, ability to work for other companies, whether the arrangement is ongoing or a one-time task, who is responsible for providing tools and equipment? Leave benefits and methods of payment.

Who Is Covered? & Who Is Not Covered?

Who is Covered?

In Australia, workers’ compensation schemes cover workers who meet the scheme’s legislative definition of worker or deemed worker.

Who Is Not Covered?

Genuine Independent contractors, sole proprietors, partnerships, and trusts are generally not covered by workers’ compensation schemes and must arrange their income protection insurance. They are typically employed under a contract for services and are considered to be running their own business and working under commercial contracts rather than employment contracts. Plumbers, freelancers, and a wide range of other workers are frequently classified as independent contractors and are not covered by workers’ compensation schemes.

Existing workers’ compensation systems make obtaining workers’ compensation insurance impossible for sole proprietors, partnerships, trusts, or independent contractors. This is due to current worker definitions and the difficulties in covering the costs of these types of workers.

Sham contracting arrangements

When an employer disguises an employment relationship as an independent contracting arrangement, this is known as sham contracting. This is typically done to avoid paying employee benefits. If you believe you are involved in a sham contracting arrangement, the Fair Work Ombudsman can look into it.

An employer can engage in sham contracting knowingly or unknowingly. These kinds of arrangements are sometimes set up by employers who want to avoid paying employees’ legal entitlements.

When a company (or an individual) tells a worker they are an independent contractor, the worker is actually an employee of the company. A sham contracting arrangement may exist if the business knew (or was reckless as to whether) the worker was an employee. Even if the worker is treated in some ways as an independent contractor, a sham contracting arrangement may exist (for example, the worker may be required to have an ABN and submit invoices like a genuine independent contractor would).

Engaging in sham contracting is prohibited under the Fair Work Act 2009 and penalties may be applied in the event of contravention.

Sham contracting is illegal. It’s illegal to:

tell an employee they are an independent contractor

say something false to convince an employee to do the same work for the employer but as an independent contractor

dismiss or threaten to dismiss an employee if they don’t become an independent contractor, or

dismiss or threaten to dismiss an employee in order to engage them as an independent contractor to do the same work.

mislead an employee in order to persuade them to perform the same (or mostly the same) work as an independent contractor.

The courts have the authority to impose penalties for sham contracting. Per violation, the maximum penalty is $13,320 for individuals and $66,600 for corporations.

As an employer, you must understand the common factors that determine whether a person is an employee or an independent contractor. Remember that there is no single deciding factor, and each case is approached differently to determine whether a contract is for employment or for independent contracting. Below are some of the most important factors to take into account, take note that the list is not exhaustive.

How much control does the employee have over their work?
The authority to delegate tasks to others.
The ability to work for other companies.
Whether the arrangement is ongoing or a one-time task.
Who is responsible for providing tools and equipment?
Leave benefits.
Methods of Payment.

A short video about sham contracting.

https://youtu.be/KVBm6dg3PQ0

Dealing with unfair or harsh contracts

The Independent Contractors Act 2006 allows independent contractors to ask a court to set aside or change a contract if it’s harsh or unfair.

Avoidance Arrangements

Liability for arrangements that are contrived to avoid workers’ compensation Workers’ compensation laws prohibits certain employers from requiring individuals to incorporate (set up their own company) as a condition of getting a contract for work.

What the Act says: Section 175AA
(1) “…a person (“W”) executes work for another person (“E”) under an avoidance arrangement if –

(a) the work is executed under an arrangement that is contrived to enable E to have the benefit of W’s services without having liabilities and duties as W’s employer under this Act;

(b) the arrangement was entered into on or after the coming into operation of section 13 of the Workers’ Compensation Legislation Amendment Act 2005;

(c) while the arrangement is in effect – i. W executes work principally for E on behalf of a company of which W is an employee or director (the “company”); and ii. the work is directly a part or process in
the trade or business of E.

Employers cannot contract out of liability under the Act by making a worker sign an agreement that they are not entitled to claim workers’ compensation or seek to avoid liability through contractual. arrangements. The Act refers to such an agreement as an avoidance arrangement and hefty penalties apply for those engaging in an Avoidance scheme.

Is my worker an “Employee” or a “Contractor”?

Check if your contractor satisfies the 4 conditions below:

a) The sole trader, company, trust, or partnership is working on or on behalf of your company.

b) The same person will personally perform at least 80% of the total contract work.

c) You will pay the sole trader, company, trust, or partnership primarily for the supply of labour (rather than the supply of equipment or materials).

d) You must pay at least 80% of the total gross income earned by the sole trader, company, trust, or partnership from all sources for services of the same kind.

If all four of the above conditions are satisfied by your WorkCover Authority, the contractor is likely to be considered a worker unless it is satisfied that the contractor operates as an independent business; this also applies to a sole trader who would be classified as a genuine contractor. If one or more of the four conditions listed above do not apply, your contractor is most likely not a deemed worker for WorkCover insurance purposes.

Consider the following factors when determining whether a contractor is engaged in an independent business other than yours. There is no single factor that is decisive:

All of these indicators must be considered when determining whether you are an employee or an independent contractor. There is rarely a single deciding factor. For example, simply having an ABN or issuing invoices does not make you an independent contractor.

Because of the nature of their work, a person is not automatically classified as an employee or an independent contractor. An individual may perform the same type of work as an employee of a company while remaining an independent contractor.

This means that whether someone is an employee or an independent contractor is determined by the facts of the case.

Is the contractor’s business under your control or subordination? For example, do you have authority over who the contractor hires or how the work is completed?

Is the contractor’s business dependent on yours for survival?

Is it common for the contractor to enter into agreements with multiple hirers at the same time (or one after the other)?

Is the contractor claiming to be available to work for others? (For example, does the contractor advertise – through tender or word of mouth – that they are available to perform contractor services; does the contractor have independent branding; and does the contractor describe itself as a part of your business?

Is the contractor’s service offering supported by financial or other systems?

Is the contractor’s usual practice to hire employees or subcontractors?

Is it you or the contractor who handles customer accounts?

What is the contractor’s payment method?

In addition to reviewing the contractor’s business, the following are important factors to consider when making your decision:

The use of a business name by the contractor.
The origins of the contractor business.
The extent and type of advertising used by the contractor.
The clientele that the contractor serves. The scope and nature of the contractor’s plant and equipment used in the provision of services.
The hiring of employees or subcontractors by the contractor.
The contractor’s use of the commercial property.
The method of operation of the company (such as tendering for jobs)
The contractor’s entrepreneurial risk.
The nature of the contractor’s business and the services that are offered.

The nature of the contracts entered into (for example, formal long-term contracts or informal rolled-over contracts), as well as whether work is performed on separate contracts concurrently.

Whether the contractor quotes jobs competitively on an all-inclusive basis (all labour and materials), or whether the contractor simply charges an hourly rate and adds the cost of materials.

Australian Tax Office (ATO) Decision Tool

You must use the worker and contractor decision tool to properly determine the employment status of your contractual worker.

The Australian Taxation Office (ATO) decision tool serves as the foundation for each state and territory decision tool kit. It is recommended that you use the tool kit for each contractual worker three times because each time you will get a different result depending on how you answer those questions. So, be consistent in your responses to those questions. Rather than guessing, take the test yourself to avoid superannuation penalties and fines. While you’re at it, have an employment solicitor or a contract lawyer review your employment contracts to ensure they reflect the worker’s capacity.

The table below outlines six (6) of the factors that, when considered together, determine whether a worker is an employee or a contractor for Tax and Superannuation purposes.

An employee works for and contributes to your company. A contractor owns his or her own business. Six factors are discussed below to help determine whether a worker is a contractor or an employee for tax and super purposes.

There are 6 key things to check to help you work out if you’re a contractor or employee.

Ability to sub-contract or delegate: Who does the work?
Basis of payment: How does the person who pays you work out how much to pay you?
Equipment, tools and other assets: What do you need to do for your work?
Commercial risks: If you make a mistake, who pays to have it fixed?
Control over the work: Who tells you how to do the work?
Independence: Are you seen to be a part of the business or separate?

Employee	Contractor
*Ability to subcontract/delegate:* The worker is not operating independently of your business if they work within and are considered part of your business. If the contract requires the worker to do the work personally, and the worker is unable to do so and arranges for someone else to do it. But your company pays the other person, this is a substitution and not delegation. The agreement or contract your business has with the worker can be in writing or verbal. If your company, for example, has the authority to direct what work the worker does, where the work is done, how the work is carried out, and when the work is completed, and your company sets the worker’s hours.	*Ability to subcontract/delegate:* If your company allows the workers to subcontract/delegate work and pay someone else to do it, they are considered a contractor. You are not required to withhold tax on payments made to them unless they fail to provide you with their ABN, or you have a voluntary agreement with them. Individual contractors may be required to pay super if the contract is primarily for their labour and there is no FBT obligation.
*Basis of payment*: The basis of payment refers to how you determine how much you agree to pay the worker. The employee is paid by the hour, a price per item or activity, or a commission. If your employees are paid a set amount for the time they work, such as an award rate, annual salary, or hourly or weekly rate, you pay them a set amount per period (which is paid on a regular basis, such as weekly or monthly). Prices are sometimes called “piece-work” rates. You pay your employee a set amount for each item or activity produced over a specified time period (for example, the number of research interviews conducted, the amount of fruit picked, or the amount of sales successfully completed) (for example, daily, weekly or monthly). Being paid on a commission basis is considered a price per item or activity.	*Basis of payment:* The worker is paid for a result achieved based on the quote they provided. A quote can be calculated using hourly rates or price per item to work out the total cost of the work. If 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 based on the time taken to complete the task or project), and you pay the worker the quoted amount only when they complete the agreed or pre-determined result of that task or project. The worker is not paid until the agreed result is achieved.
*Equipment, tools and other assets:* Your company provides all or most of the equipment, tools, and other assets required for the job, or the worker provides all or most of the equipment, tools, and other assets required for the job, but your company reimburses them for the cost of the equipment, tools, and other assets. Your company is responsible for providing the equipment, tools, and other assets.	*Equipment, tools and other assets:* The worker provides all or most of the equipment, tools, and other assets required to complete the work; there is no allowance or reimbursement for the cost of this equipment, tools, and other assets. The worker is responsible for providing the equipment, tools, and other assets.
*Commercial risks:* One factor to consider is whether the worker bears the legal risk and is responsible for correcting any flaws in the work at their own expense. If your company bears the legal risk for the work and is responsible for any defects in the worker’s work, the worker does not take commercial risks. If your worker fixes a flaw in their work but is compensated for the time and materials used to fix the flaw, the worker is not considered to have taken a commercial risk.	*Commercial risks:* The worker assumes commercial risks by being legally responsible for their work and liable for the cost of correcting any flaws in their work. If the worker bears the legal risk for the work and is responsible for any defects in their work, the worker must rectify any defect (including the cost of any materials required) or pay to have the defect rectified, and your business is not required to pay the worker for the time taken or any materials required to rectify any defect.
*Control over the work:* Your business controls the way the work is done if your business has the right to direct over what work the worker does, where the work is done, how the worker carries out the work and when the worker completes the work, for example, your business sets the worker’s hours.	*Control over the work:* The worker is free to use their discretion in completing the work, they can decide how it is done (subject to the terms and conditions in any contract or agreement). A company has the authority to specify how the contracted services will be performed. Such control, however, must be specified in the contract or agreement’s terms and conditions; otherwise, the worker is free to exercise their own discretion.
*Independence:* One factor to consider is whether the employee works independently of your company. If the employee works for and is considered a part of your company, they are not operating independently of it. That is, there is only one business in operation (your business).	*Independence:* The worker runs their own business separate from yours. The worker performs the services outlined in their contract or agreement and has the option to accept or decline additional work.

Australian Taxation Office (ATO) – Authorised by the Australian Government, Canberra

Employees treated as contractors

A company may not treat its employees as independent contractors. Businesses that do this illegally reduce their labour costs by failing to meet their tax and super obligations, depriving employees of their employee entitlements. companies that take this approach frequently undercut their competitors and gain an unfair competitive advantage.

The Fair Work Act 2009 protects independent contractors from adverse action, coercion and abuses of freedom of association. See Protections at work for more information.

The Independent Contractors Act 2006 sets up a national unfair contracts remedy scheme for independent contractors where they can ask a court to set aside a contract if it is harsh or unfair.

Penalties and charges

Businesses risk receiving penalties and charges, including:

PAYG withholding penalty – for failing to deduct tax from worker payments and send it to the ATO
super guarantee charge, made up of
- super guarantee shortfall amounts – the amount of super contributions that should have been paid into a complying fund
- interest charges
- an administration fees

additional super guarantee charges of up to 200%. In addition to the super guaranteed charge, which imposes nominal interest and an administrative charge in all cases on top of the super guaranteed shortfall, the ATO can impose additional penalties of up to 200% of the super guaranteed charge.

Payroll Tax Contractor Provisions

The contractor provisions can be complicated, and without knowing more about the law, you may believe that if you hire someone as a contractor, you must pay payroll tax on those payments. However, this is not the case.

The Contractor provisions deal with arrangements in which people who would normally be considered employees set themselves up as contractors. Employees of certain contractors are considered employees of the contractor’s principal under the Contractor provisions. In other words, it treats certain individuals who establish themselves as contractors as if they are employees of the individual with whom they contract.

The Payroll Tax legislation includes Division 1A Contractor Provisions. One of the reasons Division 1A is difficult to understand is that, while the word “contractor” appears in the Division heading, the Division does not define “contractor,” instead employing the concept of a “relevant contract.”

While most arrangements between a business and its contractors are covered by section 13B(1) of the Payroll Tax Act, section 13B(2) covers the following:

“(2) However, a relevant contract does not include a contract of service or a contract under which a person (the designated person), in the course of a business carried on by the designated person ….

(b) is supplied with services in relation to the performance of work, if— (iv) the services are supplied under a contract to which subparagraphs (i) to (iii) do not apply and the commissioner is satisfied the services are performed or rendered by a person who ordinarily performs or renders services of that kind to the public generally in the relevant financial year; …”
Payroll Tax

Payroll tax is a state tax levied on employers’ wages. Wages are defined as payments to contractors in many state and territory payroll tax laws. To determine whether payments are subject to the payroll tax, employers should contact their state or territory revenue office.

Watch this video for an introduction to contractors for payroll tax.

https://youtu.be/P2-0anKXoxY

Division 7, Part 3 of the Payroll Tax Act 2007 contains the payroll tax contractor provisions (the Act).

They are designed to tax payments made to contractors who primarily provide labour services and work solely or primarily for one principal during a fiscal year. Such arrangements are known as ‘relevant contracts.’

Payments to contractors are subject to payroll tax if they are made without exception in accordance with a “relevant contract”. Who are the contractors? What exactly is a pertinent contract? Which exclusions are applicable? A business may lose a lot of money due to mistakes. The general contractor provisions are applicable in Australia (except WA). As a result, even if you live elsewhere, the basic requirements can still be applicable to you. Just the particular exemptions vary from one state or territory to another.

In addition to their obvious title of the contractor, contractors can also have any number of other titles. They can be either natural persons or corporate entities.

A “relevant contract” is one in which one party pays another for services and which, among other things, does not fall under one of the contractor exemptions. The payment is deemed to be a wage, the party making the payment is deemed to be an employer, and the person performing the work is deemed to be an employee.

Contractor payments are considered wages in certain circumstances. Division 7, Part 3 of the Payroll Tax Act 2007 contains the payroll tax contractor provisions (the Act). They are designed to tax payments made to contractors who primarily provide labour services and work solely or primarily for one principal during a fiscal year. Such arrangements are known as relevant contracts.’ Payments made under these contracts are considered wages (excluding GST). The principal who hires the contractor is considered an employer who must pay payroll tax on those wages.

The contractor provisions apply whether the contractor operates as a corporation, trust, partnership, or sole proprietor. In general, the contractor provisions are primarily concerned with these exemptions. If an exemption applies, there is no payroll tax. Otherwise, the payroll tax will be applied. A service contract is not a relevant contract if it falls under one of the general contractor exemptions listed below.

What are the exemptions that exclude contracts from payroll tax?

To qualify for an exemption, a contractor must provide the services rather than an employee. As a result, even if none of the exemptions listed below applies, payments made to contractors who provide any of these types of services are not taxable.

If any of these exemptions apply, the contract is rendered null and void, and no payroll tax is imposed.

Labour provided under the contract: If the labour provided under the contract is incidental to the supply or use of goods, the contract is not relevant.

Services that are not normally required and are provided by the contractor to the general public. The purpose of such a contract must be to secure services that a business would not normally require, and the person who provides those services must provide the same type of services to the general public during that financial year.

180 days exemption: Services that are normally required for less than 180 days in a financial year. An exemption applies if a business does not normally require these services and only uses them for 179 days or less per year.

90 days exemption: Services are provided for 90 days or less in a financial year. This exemption applies if employees work for the hiring company for less than 90 days during the fiscal year. After 90 days, the entire contract becomes applicable from day one, unless one of the other provisions applies. This exclusion involves determining the total number of days on which a particular type of principal requires service, irrespective of whether a contractor has provided the services.

The contractor typically provides the following public services. When the first four exemption provisions do not apply, a taxpayer may apply for this one. When satisfied by evidence, the Chief Commissioner may exclude the contract if the contractor provides services of that type to the general public during the fiscal year. The contractor must have actually provided services to the public; simply having the ability to do so is insufficient. This exclusion applies to contracts under which the provision of services is not ordinarily required in the principal’s business and the contractor usually provides the same services to the public generally. This recognises the fact that businesses may require certain services that are not associated with their main business.

Two or more individuals providing services: If the contractor hires others to perform the services or the service requires the participation of two or more people, a contract is not required. If it is discovered that this exemption was obtained with the intent of avoiding payroll tax, it may be denied. As a result of harmonisation, these are the six general provisions that apply throughout Australia (except in Western Australia). Exemptions differ by state or territory. Others have three or none, whereas NSW has only one. The specific NSW exemption is listed below.

Services provided by an owner-driver: The contract is not relevant if it is solely for the conveyance of goods in a vehicle provided by the contractor. The contractor, who is not an employee, must own or lease the vehicle as a vehicle. This exemption is very important in the transportation industry because it applies to all owner-drivers. Generally, these are contractors engaged primarily to transport goods where the contractor provides and drives the vehicle used for the transport of those goods

If you can prove to the Commissioner that the contractor is a genuine contractor as defined by the Payroll Tax Act, no payroll tax is due on those contractor payments. Should the Commissioner determine that the contract or arrangement was entered into with an intention of either directly or indirectly avoiding or evading the payment of tax by any person, the exemption will not apply.

Payroll tax deductions on contractor payments

You may deduct an approved non-labour component from your taxable wages if you are required to pay payroll tax on contractor payments where the contractor provided materials and equipment. You must declare as wages the entire payment (both labour and non-labour components) less any authorised deduction. To calculate the non-labour component deduction, use the approved percentages from Revenue Rulings.

There is no payroll tax if there is evidence that a contract for services is not a relevant contract. The contractor provisions apply in the absence of evidence. So, the payment is considered a wage, the person paying the wage is considered an employer, and the person performing the work is considered an employee. The onus of proving that any of the exemptions apply rests with the employer. They must be able to provide documentation proving that a contract is not applicable.

What happens if the contract provides for the supply of equipment and/or materials in addition to labour?

Where a contract distinguishes between payment for work performed and material/equipment supplied, only the portion that relates to the work performed is taxable.

Where a contract does not distinguish between labour and other costs, the Commissioner has made the following determinations of the percentage attributable for providing materials and/or equipment. These amounts can be excluded.

The deductions below are for the non-labour components where the contractor provides equipment and/or materials. Based on submissions made by employers and industry representatives, the Commissioner has allowed the following percentage deductions:

Find out more about contractor deductions in:

Payroll tax on employment agent or labour-hire arrangements

The contractor provisions are not applicable where a contract worker is provided under an employment agency contract.

The employment agency provisions apply to a labour-hire arrangement where a person (the employment agent) contracts with another (the client) for the provision of labour where there is no agreement between the service provider (that is, the contract worker) and the client.

If you work as an employment agency, you may be subject to payroll tax on the wages you pay employees for services rendered to your clients. Payroll tax may be due if you hire and pay an individual worker to provide services to a client and If remuneration is paid or payable by you for the worker’s services, you are entitled to receive payment from the client for the period during which the worker supplies services to that client.

An employment agency contract exists if an employment agent obtains a worker to provide services to a client in return for a fee. Under this arrangement, the worker does not become an employee of the client. The worker can provide these services individually or through a corporation or trust.

The diagram below demonstrates how an employment agent arrangement works.

An employment agent arrangement usually involves the following:

the worker contracting with the employment agent
the employment agent contracting with the client.

Note: An employment agency is different from a recruitment agency arrangement. See the public ruling about recruitment agencies (PTA029) for more information. Also Determining whether a worker is an employee | Revenue NSW

Payroll tax is calculated on any amount paid to the contract worker from any source in relation to that contract and the value of any fringe benefits and superannuation contributions provided for the contract worker. Care should be taken in determining if the employment agency provisions apply to your organisation. These provisions apply regardless of whether the relationship between the contract worker and the employment agency is one of the principal/contractor or employer/employee.

Before you consider whether you are paying amounts under a relevant contract, look at whether the:

a person providing services is your employee
person’s services are provided to you by an employment agency.

If you are satisfied that neither of these applies, you can then look at whether a relevant contract exists. For more details, please refer to the website for your state or territory:

Combine the ATO Six (6) Rules with these Golden Rules.

The factors listed in the table below with the ATO six (6) Golden Rules will assist you in determining whether a worker is an employee or a contractor for tax and super purposes. This information aids in comprehending each factor that contributes to the decision-making process.

Contractor Provisions – An exception

WorkSafe Victoria Contractor (80% Rule)

If your contractual worker is a sole working director who operates as an Incorporated Entity and works for you more than 80% of the time, their services and gross income are entirely dependent on you. The contractual worker is then referred to as a Deemed Worker and you need to cover this contractor. This rule was introduced to avoid “double dipping”.

For a relevant period under a contractual arrangement between a contractor and a hirer, if all of the following three conditions apply:

the provision of materials or equipment is not the principal object of the arrangement

at least 80% of the work is performed by the same individual: under the arrangement, at least 80% of the contractor’s gross contractual income is, or is to be, a direct result of the services performed by the same individual; or under the arrangement, at least 80% of the contractor’s total time to complete the services is, or can be expected to be, taken up by the same individual; and

at least 80% of the contractor’s overall services income is earned from the hirer: under the arrangement, the contractor’s gross contractual income that is earned, or is expected to be earned is at least 80% of the contractor’s overall services income.

and unless WorkSafe determines that the arrangement is part of the contractor’s independent trade or business:

the individual is deemed to be a worker of the hirer for that period; and

the total amount paid or payable to the contractor under the arrangement less any applicable statutory percentage or any part of that total amount not attributable to the provision of labour is deemed to be rateable remuneration for the purposes of the legislation.

WorkCover Qld Contractors

In Queensland, any contractual worker who is a Deemed Contractor is not covered, regardless of whether the contractual worker is a sole trader, trust, partnership, or an Incorporated Entity. Also, note that working directors are not covered under the current scheme.

Important Notice:

It is not necessarily your contractual worker who is trading as an Incorporated Entity is automatically considered a contractor as this depends on the contractual work arrangement. Not necessarily, an ABN holder that is sole trader, partnership and trust is automatically considered a Deemed Worker. Depending on the contractual work arrangement, they can also be considered a Deemed Contractor.The fact that a person is self-employed or has an Australian Business Number does not absolve the person or entity who hired them of any liability for work-related injuries. The provisions of the Act apply regardless of any contrary contract (section 301). This means that any private arrangement entered into in relation to compensation for workplace injury is null and void if the contractor makes a claim and is considered a worker under the Act.

Summary Table

Coverage of Contractors and Labour hire workers

State	Are individual contractors covered under the legislation?	Are labour hire workers covered under the legislation?
New South Wales	Not unless the contractor is a deemed worker pursuant to Schedule 1, Workplace Injury Management and Workers Compensation Act 1998	Yes, labour hire firm held to be employer — Clause 2A. Schedule 1, 1998 Act
Victoria	Not unless the contractor is a deemed worker pursuant to clause 9 of Schedule 1	Yes, labour hire firm is held to be an employer (definition of ‘worker’ in s3)
Queensland	No. The following guidance for determining whether a person is a worker is provided: Worker guidelines and Worker determination	Yes, labour hire firms held to be an employer
Western Australia	No, unless employed under a contract for service and remunerated in substance for personal manual labour or service	Yes, labour hire firm held to be employer
South Australia	Yes, if undertaking prescribed work or work of a prescribed class — s4(1) — contract of service and Regulation 5 — contract of service and other terms	Yes, labour hire firm held to be employer s4(4). See Employment Services (Labour Hire) Guidelines (available on ReturnToWorkSA website for more information)
Tasmania	Worker may include contractors: where the contract is for work exceeding $100 in value which is not related to a trade or business regularly carried on by the contractor in the contractor’s own name or under a business or firm name — s4Btaxi and luxury hire car drivers — s4DA & s4DBsalesperson paid by commission — s4Cjockeys —s4DC. Some forms of contract may misrepresent the true nature of the contract. The final arbiter is the Tasmanian Civil and Administrative Tribunal.	Yes, labour hire firm held to be employer
Northern Territory	No, unless the contractor is a person who works under a contract and, in relation to the contract, is an employee for the purpose of assessment for PAYG withholding under the Taxation Administration Act 1953 (s3B of the Return to Work Act 1986).	Yes, if the individual’s contract or agreement is with the Labour Hire firm, the firm is the employer
Australian Capital Territory	No, if employed under a contract for services. However, there are provisions for the coverage of regular contractors.	Yes, where the individual is not an executive officer of the corporation and: the individual has been engaged by the labour hirer under a contract for services to work for someone other than the labour hirer there is no contract to perform work between the individual and person for who work is to be performed, or the individual does all or part of the work.
C’wealth Comcare	No, compensation only through employment of employees	Possibly, depending on the nature of the contract
C’wealth Seacare	No, compensation only through employment of employees	Possibly, according to the definition of the nature of the contract
C’wealth DVA	Military Rehabilitation and Compensation Act 2004 (MRCA) Not unless they are members of the Defence force or the subject of a Ministerial determination under which they are to be treated as members of the Defence Force for the purposes of the Act – s7A or s8Safety, Rehabilitation and Compensation (Defence-related Claims) Act 1988 (DRCA) — Not unless they are members of the Defence force or the subject of a Ministerial determination under which they are to be treated as members of the Defence Force for the purposes of the Act — s5.	Military Rehabilitation and Compensation Act 2004 (MRCA) — Not unless they are members of the Defence force or the subject of a Ministerial determination under which they are to be treated as members of the Defence Force for the purposes of the Act – s7A or s8Safety, Rehabilitation and Compensation (Defence-related Claims) Act 1988 (DRCA) — Not unless they are members of the Defence force or the subject of a Ministerial determination under which they are to be treated as members of the Defence Force for the purposes of the Act — s5.
New Zealand	Yes	Yes, labour hire firm held to be employer

Safe Work Australia

Agencies responsible for overseeing Workers’ Compensation in each jurisdiction

State	Policy	Premium	Claims	Current legislation	Disputes
New South Wales	State Insurance Regulatory Authority (SIRA)	Insurers subject to SIRA oversight	Nominal Insurer for most employees through 3 private sector Scheme Agents, Self-Insurance Corporation for most public sector employees through 3 private sector claims administrators, 58 self-insurers and 6 specialised insurers.	Workplace Injury Management and Workers Compensation Act 1998 Workers Compensation Act 1987	SIRA Workers Compensation Commission Workers Compensation Independent Review Office
Victoria	WorkSafe Victoria	WorkSafe Victoria	4 private sector agents and 34 self-insurers. Further information regarding WorkSafe agents and self-insurers are available on WorkSafe Victoria’s website.	Workplace Injury Rehabilitation and Compensation Act 2013	WorkSafe Victoria Accident Compensation Conciliation Service (ACCS), Medical Panels Magistrates’ or County Court
Queensland	Office of Industrial Relations	WorkCover Queensland	WorkCover Queensland and 28 self-insurers	Workers’ Compensation and Rehabilitation Act 2003	Workers’ Compensation Regulator Queensland Industrial Relations Commission or Industrial Magistrate, Industrial Court
Western Australia	WorkCover WA	Insurers subject to WorkCover WA oversight	8 private sector insurers, 23 self-insurers, (exempt employers) and the Insurance Commission of Western Australia	Workers’ Compensation and Injury Management Act 1981	Conciliation and Arbitration Services
South Australia	ReturnToWorkSA	ReturnToWorkSA	2 private sector agents, 70 private self-insurers and 54 Crown (State Government) self-insurers	Return to Work Act 2014Return to Work Corporation of South Australia Act 1994South Australian Employment Tribunal Act 2014	South Australian Employment TribunalSupreme CourtReturnToWorkSA Premium Review Panel
Tasmania	WorkSafe Tasmania	Licensed private sector insurers subject to WorkCover Tas oversight	7 private sector insurers and 9 self-insurers	Workers Rehabilitation and Compensation Act 1988	Tasmanian Civil and Administrative Tribunal, Supreme Court
Northern Territory	Department of Attorney General and JusticeNT WorkSafe	Private sector insurers	4 private sector insurers5 self-insurers and the Northern Territory Government self-insures for public sector employees Nominal Insurer	Return to Work Act 1986 Return to Work Regulations 1986	Mediation coordinated by NT WorkSafe.Work Health Court
Australian Capital Territory	Chief Minister, Treasury and Economic Development Directorate	Licensed private sector insurers, subject to WorkSafe ACT oversight	7 private sector insurers and 7 self-insurers	Workers Compensation Act 1951	Conciliation, arbitration, Magistrates Court, Supreme Court
C’wealth Comcare	Attorney-General’s Department	Comcare	Comcare/Self-insurers and their agents.	Safety, Rehabilitation and Compensation Act 1988	AAT, Federal Court
C’wealth Seacare	Attorney-General’s Department	Private sector insurers	Employers/ insurers	Seafarers Rehabilitation and Compensation Act 1992	AAT, Federal Court
C’wealth DVA	Mil itary Rehabilitation and Compensation Commission (MRCC)	N/A	DVA	Safety, Rehabilitation and Compensation (Defence-related Claims) Act 1988 (DRCA)Military Rehabilitation and Compensation Act 2004 (MRCA)	AAT, Fe deral Court, Veterans’ Review Board (VRB)
New Zealand	Ministry of Business, Innovation, and Employment (former) Department of Labour	Accident Compensation Corporation (ACC)	ACC	Accident Compensation Act 2001	ACC, mediation, independent reviewers, court system

Safe Work Australia

Written by Yon Ta, updated 5 September 2022

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Disclaimer:

The information in this post is strictly for informational and educational purposes only and should not be construed as legal advice. It is not intended to express specific opinions about specific cases. Before acting on any of the issues discussed in this post, seek additional advice. The information provided should not be relied on for any purpose other than to assist you to understand how Workers’ Compensation insurance works. It is for illustrative purposes only and My WorkCover Solutions Pty Ltd does not accept liability for any loss or damage suffered by any person resulting in any way from the use of or reliance on, the information provided. The information in this article is believed to be correct as of the date of publication. However, changes in the applicable laws may have an impact on the accuracy of the material. This article contains general information that is not tailored to any specific person’s situation. This publication may contain information that relates to the regulation of Workers’ Compensation insurance in your State or Territory. To ensure you comply with your legal obligations, we would recommend you refer to the appropriate legislation as currently in force in the State or Territory you conduct your business. You can find up-to-date legislation by visiting each state’s WorkCover Authority website, alternatively contact myWorkCover for updated information.

Yon Ta

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Contractor Provisions

Workers’ Compensation Contractor Provisions Guidelines

What is the distinction between a Principal Contractor, a Contractor, a Subcontractor, an Independent Contractor, a Worker, and an Employee?

In Australia, Workers’ Compensation Schemes generally consider three core criteria to determine whether a worker can claim workers’ compensation for a specific injury or illness.

The rules of the specific workers’ compensation scheme in their jurisdiction will determine whether a worker is covered by workers’ compensation.

When reviewing contractor provisions, the High Court considered the following factors.

Three important factors:

High Court decisions regarding the classification of employees and contractors could affect employee benefit provisions

Case Studies:

October 2022 Update: A recent High Court decision on how workers should be classified as independent contractors or employees has significant implications for some labour hire companies.

Independent contractors, roosters and ducks — the High Court decision in CFMMEU v Personnel Contracting

September 2022 Update: An Employee or a Contractor? A Fair Work Commission (FWC) landmark ruling.

Fair Work Commission reinforces the High Court’s new ‘Employee v Contractor’ Test

In the case of Franco v Deliveroo Australia Pty Ltd back in June 2021.

Deliveroo Appeal to FWC

The High Court & FWC Views

Conclusion in the case of Franco vs Deliveroo

In the event, Mr Franco was injured during the delivery for Deliveroo

Difference Between “Employees” and “Contractors”

How to tell if a contractor you hired qualifies as a worker for WorkCover insurance purposes.

WorkSafe Victoria – Contractor guideline flowchart

Why should you keep an “arm’s length” relationship with your contractor?

The Guide

How do you know if a contractor you hired is a deemed worker for WorkCover insurance?

Related reading: How Do WorkCover Claims & Other Factors Impact Your Premium?

Contractor Provisions under Labour hire providers & Adhoc workers

Insurance sales agents’ contracts

Door-to-door sellers

Outworkers

Taxi drivers

Sharefarmers

Sporting contestants/athletes

Timber contractors

Contract of Service & Contract for Service

A court or tribunal considers the entire picture (the totality of the relationship) as well as all possible factors (a multi-factor test), including:

Contract of Service

What the Act says

A large part of the workforce works under a ‘contract of service‘ including:

Control Test

The integration test

The results test

The risk test

Remuneration

Working hours

Minimum entitlements

The right to employ others

Equipment

Termination

Terms of the contract

Contract for Service

The meaning of the term ‘in substance’

The meaning of engaged for the purpose of the employer’s trade or business

Defining a Worker’s Status Contract for Service

Contract for Services or Contract for Goods

However, the differences between these two contracts are significant, and they include:

Definition:

“Worker” or “Employee”

As an employee, you:

Deemed Worker

Contractors

As a contractor, you:

Independent Contractor

Subcontractor

In the multi-factor test, the following factors must be weighed and balanced:

Principal Contractor – Only applicable in the construction industry

Engaging a principal contractor

Related reading: Definition of a PCBU: a person conducting a business or undertaking

Principal contractors for construction work valued at $250,000 or more

What is a Construction Project?

The cost of the construction work should not include:

Principal contractors are governed by different legislation

Harmonised jurisdictions

Non-harmonised jurisdictions

Harmonised jurisdictions – only apply to a ‘construction project’

Victoria

Western Australia

The main contractor is:

The “hands-off” approach with contractors

The “main contractor” is not strictly appointed but is determined by the Regulations

There can only be one principal contractor at any time in relation to a construction project.