GN 2.1 Worker or contractor
Published: 12 August 2019
Last edited: 12 August 2019
Application: This guidance applies to exempt workers
Overview
The entitlement to compensation under the Acts arises under section 9 of the Workers Compensation Act 1987 (1987 Act), qualified by sections 4 and 9A of the 1987 Act.
The basic proposition is that a worker who has received an injury arising out of or in the course of employment, shall receive compensation from the worker’s employer in accordance with the Acts.
It is important to note that the question of whether a person is a contractor or a worker can be raised in many different arenas, for example for tax purposes or employment law. A finding that a person is or is not a worker for, say, tax purposes, does not necessarily mean that a person is or is not a worker for workers compensation purposes.
This guidance provides information to assist insurers to determine whether a person is a worker for the purposes of workers compensation.
Note: Before a person can receive workers compensation benefits, the insurer must be satisfied that they are a worker as defined by the legislation and under the principles at common law.
Section 4 of the Workplace Injury Management and Workers Compensation Act 1998 (1998 Act) defines a worker as 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).
A contract of service, then, exists where a worker serves his or her employer in the employer's trade or business. A contract of service is not the same as a contract for services, where a contractor carries on their own trade or business. A contract of service may be oral or in writing, and the terms of the contract may be clearly expressed or implied.
There are many situations where the nature of the relationship is unclear. An insurer needs to carefully review and consider all the features of the relationship between the parties to determine whether the person is a worker.
Factors to consider
Determining whether a person is a worker or not requires a careful review and weighing of all the facts in favour of and against the existence of a contract of service. This is sometime referred to as 'weighting the indicia'.
Some factors to consider are included in the table below. No single factor determines whether a person is a worker or a contractor and other factors may also be relevant:
Indicator | A person is more likely to be a worker if: | A person is more likely to be a contractor if: |
|---|---|---|
Control over work | The employer controls what work is to be done and how it is done. | The contractor has freedom in the way the work is done subject to an agreement. |
Risk | The worker bears little or no responsibility to rectify poor work. | The contractor is required to rectify poor work at their own costs and bears commercial risk of loss incurred by a principal due to their poor work. |
Ability to subcontract or delegate work | The worker cannot subcontract or delegate the work. | The contractor can pay someone else to do the work. |
Location and hours of work | The employer dictates the location of work and sets standard or set hours. | The contractor can decide when and where to work to complete the specified task. |
Uniform | The employer can insist that the worker wear a uniform or company logo. | Is not required to wear any uniform or company logo. |
Expectation of work | The worker has an ongoing expectation of work. | The contractor is engaged for a specific task or project. |
Superannuation | The employer pays superannuation contributions to a superannuation fund. | The contractor is likely to be responsible for paying their own superannuation. |
Tools and equipment | The employer provides the tools and equipment or gives an allowance. | Uses their own tools and equipment. They do not receive an allowance or reimbursement for the costs of the tools and equipment. |
Tax | The worker has income tax deducted by the employer out of wages/salary. | Tax invoices include GST. The contractor is responsible for their own tax obligations. |
Method of payment | The worker is paid on a regular basis (eg fortnightly/ monthly). | A contractor has an ABN (Australian Business Number) and submits an invoice for work completed or is paid on the completion of a project. |
Leave | The worker is entitled to accrue and receive leave (eg annual leave, sick leave, long service leave, etc). | Does not receive paid or unpaid leave. |
Note: These factors may not be conclusive when determining whether an individual is a worker or contractor. For example, a person is not necessarily an independent contractor just because the person has an ABN. All aspects of the relationship need to be considered and weighed before a decision can be made as to whether the person performing the work is a worker or a contractor.
Case law
The following summaries are examples of where a court has considered the employee/contractor relationship.
Zuijs v Wirth Brothers Pty Ltd [1955] HCA 73
Zuijs was injured during an acrobatic performance at the circus. The High Court held the contract between Zuijs and the circus owner as being one of employment. While Zuijs performed independently, control was exercised over him throughout rehearsals, performance times, costumes to be worn and safety measures to be followed. Other indicators included that he was on a salary, there was power to dismiss him for misconduct and appoint others.
Stevens v Brodribb Saw Milling Co Pty Ltd [1986] HCA 1
This case considered whether truckers and sniggers were independent contractors or employees.
In this matter, a claim was brought by a trucker against a saw miller, after an injury caused by a negligent snigger.
The saw miller engaged sniggers to move felled trees to a loading zone and truckers to move the trees to mills. The sniggers and truckers used their own vehicles, set their own hours of work, were paid for volume carried, had no income tax deducted, had no guarantee of ongoing work, and could work for others. The saw miller supervised operations but did not exert any control over the men or work.
The High Court adopted a ‘balance the indicia approach’ finding that the principal criterion is control but it is not conclusive. Both the truckers and sniggers were found to be independent contractors.
Hollis v Vabu Pty Ltd [2001] HCA 44
This was a matter involving a bicycle courier who collided with a pedestrian on the footpath, causing injury to the pedestrian. The courier was never identified but he was wearing a Crisis Courier green shirt. The question before the Court was whether the courier was an employee (the employer therefore being vicariously liable for his actions) or an independent contractor.
The Court weighed the various factors of the relationship. Of note, the Court thought it was intuitively unsound to state that the bicycle couriers were running their own business and furthermore they had little control over the manner of performing their work. The courier was found to be an employee and the employer vicariously liable for his actions.
Amalgamated Pest Control Pty Ltd v Chaaya [2015] NSWWCCPD 53
In this case the Workers Compensation Commission (Commission) considered the relevant indicia and applied the principles in Hollis v Vabu.
Mr Chaaya had entered into a ‘Technician Licence Agreement’ with Amalgamated Pest Control Pty Ltd. The agreement required Mr Chaaya to pay to the appellant a $1,000 establishment fee and $5,000 for the cost of training.
He commenced work as an ‘Amalgamated Pest Control Technician’, under the terms of the agreement. While performing work as a pest controller under the agreement, Mr Chaaya injured his back.
In a detailed decision, DP Roche stressed that the modern approach is ‘multi-factorial’ and undertook a comprehensive review of the evidence including control, hours of work, taxation arrangements, delegation of work, right to dismiss, the mode of remuneration, vehicle, tools and equipment, power to terminate/right to dismiss, ABN and tax arrangements, holidays, superannuation, creation of a saleable asset, industrial awards, etc.
It was held that:
...the compelling conclusion, having regard to the totality of the relationship, and applying the relevant authorities, is that … Mr Chaaya did not conduct a business and that he was a worker employed by the appellant under a contract of service.
Deemed workers
Where a person is not a worker under section 4 of the 1998 Act, they may still be entitled to workers compensation benefits. Employers may still be liable for contractors who are ‘deemed workers’ under the legislation.
Schedule 1 to the 1998 Act provides a list of persons who are deemed to be workers under the legislation. The list is extensive and includes timber-getters, tributers, jockeys and harness racing drivers, workers lent or let on hire, outworkers, drivers of hire vehicles under a contract of bailment (taxi drivers), shearers, cooks and others in pastoral/agricultural work, workers at place of pick up, etc.
Insurers should check the precise terms of the definition in Schedule 1 whenever there is a claim by a worker who appears to fall into one of these categories.
Other contractors
The most commonly encountered category of deemed employment is contained in Clause 2, Schedule 1 – 'Other contractors'.
The contractor will be deemed to be a worker under Clause 2, Schedule 1 if they can establish that:
- the contractor agreed with the principal (the head contractor) to perform work for a payment of at least $10
- the work performed was not work incidental to a trade or business regularly carried on by the contractor in the contractor’s own name or under a business or firm name
- the contractor did not subcontract the work nor employ any workers in the performance of it.
It is not always easy to determine what is ‘work incidental to a trade or business regularly carried on by the contractor’. The approach taken by the courts is to look at whether the contractor holds him or herself out to the public as carrying on a trade or a business.
Malivanek v Ring Group Pty Ltd [2014] NSWWCCPD 4
In this matter, the Commission considered a matter involving a carpenter engaged to assist another person to install a skylight at a domestic property. On the first day, he fell from the roof and suffered serious injuries.
DP Roche undertook a lengthy analysis of the often-conflicting facts and stated:
A consideration and balancing of the indicia is critical, but the focal point around which one examines the indicia is whether the applicant is working in the business of another, or in the business of the applicant.
[at para 184]
He went on to consider whether the skylight work was work incidental to a trade or business regularly carried on by the contractor. He considered the evidence before him including the tax returns, statements from other witnesses, the lack of advertising, that the work was not sublet and that he did not employ workers. DP Roche concluded:
... that the work Mr Malivanek performed on 22 March 2007, when he suffered his injuries, was not work incidental to a trade or business regularly carried on by him in his own name or a firm name and, as the other conditions in Schedule 1 are satisfied, he was a deemed worker at that time and is entitled to receive benefits under the legislation.
[at para 244]
Exclusions from the definition of worker
The following are expressly excluded from the definition of worker:
- a member of the NSW Police Force who contributes to the Police Superannuation Fund under the Police Regulation (Superannuation) Act 1906, or
- a casual employee (unless they work for more than five working days) and who is not employed for the purposes of the employer’s trade or business (section 4 of the 1998 Act), or
- officers of a religious or other voluntary association who is employed upon duties for the association outside the officer’s ordinary working hours, so far as the employment on those duties is concerned, if the officer’s remuneration from the association does not exceed $700 per year (section 4 of the 1998 Act), or
- registered participants of a sporting organisation while they are participating in certain activities (within the meaning of the Sporting Injuries Insurance Act 1978) except as provided by Schedule 1.
Related: Legislation and regulations
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