Employee or contractor?
Many Australian businesses use contractors instead of common law employees. The contractor provisions were introduced specifically to tax those contracts where the worker is hired as an independent contractor, but works and operates exactly like an employee.
Although the Commonwealth Government has issued guidelines allowing workers to determine their own status as a contractor, these guidelines only apply to 'Pay As You Go (PAYG)' tax for the Australian Taxation Office, and are not based on the accepted court factors. For example, the 'results' test has three criteria and accepts that when all three are met, the worker can regard themselves as a contractor.
The three criteria are:
The worker must be paid to produce a result
The worker must provide their own tools and equipment
The worker is responsible for their own work and must fix errors.
Control
With a task to be completed, who has the authority to determine who, when, where and how the task is to be done and when and how the worker will be paid?
Integration
Is the function that the worker performs, a core function of the hiring business, and does the worker have a distinct, business identity, separate from the hiring business? The totality of this relationship between the business and the worker always needs to be examined and is usually unique to that case. Read more information on court cases involving contractors/employees.
The importance of the control test
Court decisions have reinforced the common law test of the capacity to control the way in which a task or work is to be carried out as the primary determinative factor. In situations where the worker lacks professional or trade qualifications and provides minimal or no equipment, the capacity to control the work is likely to be retained by the business and reflected in the wording of the contracts or in the actual work practices. However, even highly skilled workers can work in the manner of employees.
Note: each contract must be considered on its own merits. The same individual may be considered an agent (contractor) under one contract, and an employee under another, depending on the circumstances of the work undertaken.
If you are unsure as to the status of a worker, you should contact OSR for advice.
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