A worker is someone who is employed under a “contract of service,” or in certain circumstances a “contract for service”. A contract can be made either orally or in writing, and applies to full time, part time and casual workers.
The nature of the relationship between a worker/contractor and the principal contractor/or employer is complex. For some work situations, certain roles do not fit into defined categories. Many people working as contractors can still be treated as workers for workers compensation purposes.
Who needs a workers compensation policy
Anybody who operates a business and employs workers or engages contractors, must obtain a workers compensation policy.
Who is covered by workers compensation insurance
If a person or business employs or hires workers on a regular basis, they are considered to be an employer and must have a workers compensation insurance policy. Generally, a worker is someone who receives wages or commission, regardless of the number of hours worked each week, and includes workers who work away from the employer’s premises.
The term “contract of service” has been subject to a range of Court and Tribunal rulings about whether an employer/worker relationship exists.
These rulings have identified a range of factors that are used to determine whether a "contract of service" exists.
Many people are treated as workers for workers compensation purposes. The law refers to them as “deemed workers”. If someone is “deemed” to be a worker, their employer/principal contractor must have a workers compensation insurance policy.
Some examples of “deemed workers” include:
- Workers lent or on hire;
- Outworkers;
- Certain contractors;
- Rural Workers;
- Voluntary ambulance workers;
- Drivers of hire vehicles and hire vessels;
- Caddies and others employed through a club.
Contractors
People working as contractors (including subcontractors) under labour hire service agreements may also be "deemed workers". Workers compensation law does not rely on the tax status of the person carrying out the work to determine whether that person is a worker, "deemed worker" or contractor.
Indicators of whether a contractor is a deemed worker include:
- The terms of arrangement.
- Whether the contractor can employ or contract other people to perform the work.
- Whether the contractor works at stated hours on usual days and the contract specifies the hours or days.
- Whether the contractor measures and inspects the site and provides a fix priced quotation inclusive of labour hire and material.
- Whether the contractor deals directly with the client requesting the worker or the principal contractor for whose benefit the work is done.
- Whether the contractor can make a profit or loss over the market rate for a tradesman working in the industry.
- Whether the contractor supplies materials, machinery and equipment used in the completion of the job.
- Whether the contractor can be liable for unsatisfactory work.
Sole Traders and Partnerships
If a sole trader or partnership employs workers, they must take out a workers compensation policy. However, the sole trader or partner may not be personally covered by the policy.
So how do you distinguish between an employee or contractor
A contractor is more likely to:
- Carry on an independent business in his or her own name or under a business name.
- Be engaged to carry out a particular task using his or her own skill and judgment.
- Employ others, delegate or subcontract work to others.
- Be paid on the basis of a job quotation.
- Supply his or her own tools and materials.
An employee is more likely to:
- Be subject to the direction of the employer as to what work is to be performed, the time of the work to be performed and the manner which it is performed.
- Be required to actually carry out work.
- Be paid on a time basis.
- Have tools and material supplied by the employer.
- Work exclusively for a single employer.
- Be subject to PAYG tax arrangements.
When is a contractor deemed to be a worker:
- The contractor does not employ workers.
- The contractor does not subcontract part or all of the contracted work.
- The worker is not part of a business or trade regularly carried out by the contractor in his/her own name or under a business.
A contractor is not a worker if a number of the factors which are outlined are met:
- The contract for the work is made between a principal and the contractor’s limited liability company or partnership.
- The contractor employs new workers in relation to the contract, or the contractor subcontracts all or part of the contracted work.
- The contractor is a trade person conducting a business in a recognised trade, and the nature of the contracted work is in that trade.
- The contractor, who may be a sole trader, is shown carrying out an independent business in his or her own name or under a business name.
A critical question as to whether someone is a contractor or employee is the level of control held over that particular person by the employer/principal contractor.
Each State has differing legislation on what constitutes a worker or "deemed worker" and WorkCover in each state provides guidelines as to whether someone is considered a worker or contractor for workers compensation purposes.
WorkCover NSW has a private ruling and self assessment tool online. Employers can now apply online for a private ruling on whether a person or entity is considered to be a worker or contractor for wage record and premium calculation purposes.
The ruling does not impact on a person’s ability to lodge a workers compensation claim nor can it be used in any claims related matters – i.e. it does not disentitle someone from making a claim for workers compensation entitlements.
In considering whether someone is a contractor or worker in a particular state it is important that guidance is sought, TressCox is able to provide template questions, guidelines and guidance to ascertain whether someone is considered a worker or contractor in particular circumsatnces.
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Andrew Vandervord
Special Counsel
Phone: 61 2 9228 9362
Andrew_Vandervord@tresscox.com.au
To see the contact details of the entire TressCox Health Services Team please click here.
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