CHARLES STURT UNIVERSITY
DIVISION OF FINANCIAL SERVICES
POLICY ON DETERMINING THE STATUS OF
CONSULTANT / CONTRACTOR
OR EMPLOYEE
LAST REVISED SEPTEMBER 2003
TABLE OF CONTENTS
1.
INTRODUCTION .......................................................................................................................................... 3
2.
WHAT DIFFERENCE DOES IT MAKE FOR THE UNIVERSITY? ...................................................... 3
3.
UNIVERSITY POLICY ................................................................................................................................ 4
4.
DETERMINATION OF THE RELATIONSHIP ........................................................................................ 5
5.
THE OBLIGATION TO DEDUCT TAX ..................................................................................................... 8
6.
TYPICAL EXAMPLES AND THEIR TREATMENT ............................................................................... 9
7.
6.1
CASUAL TUTOR................................................................................................................................... 9
6.2
VISITING PROFESSIONAL ..................................................................................................................... 9
6.3
MAIL PACKAGE PREPARATION .......................................................................................................... 10
6.4
CASUAL TUTOR/MAIL PACKAGE PREPARATION ................................................................................ 11
6.5
PRESENTERS ..................................................................................................................................... 11
6.6
CSU EMPLOYEES WORKING FOR ANOTHER SCHOOL/DIVISION ........................................................ 12
6.7
STUDENT UNDERTAKING PROJECT .................................................................................................... 13
6.8
RUNNING WORKSHOPS ..................................................................................................................... 13
6.9
REVIEWING THESIS ........................................................................................................................... 14
6.10
OVERSEAS ENGAGEMENT ................................................................................................................. 15
6.11
VISITING ARTISTS ............................................................................................................................. 15
FURTHER INFORMATION ...................................................................................................................... 16
Policy on Contractor/Consultant or Employee
Page 2
1.
INTRODUCTION
1.1
Charles Sturt University regularly engages individuals to perform a range of specialised
services. Some examples, which are by no means exhaustive, include casual lecturing
staff, examination invigilators, guest lecturers, guest speakers, presenters, workshop
coordinators and others, which by their very nature are difficult to categorise. There has
been some confusion over whether to appoint such workers as employees or to
engage them as independent contractors/consultants and what are the obligations
in response to either classification.
1.2
The issue is contentious because of the different consequences attaching to each
relationship. The obligation to make PAYG Instalment deductions is one
consequence of having an employee. Other consequences may include vicarious
liability (employer is liable for acts of employees), workers compensation insurance,
industrial award rates and conditions, superannuation and payroll tax.
1.3
The issue of whether the engagement is an employee or independent contractor must be
clearly specified BEFORE any engagement undertaking is given. The University may
require a level of control and supervision which deems the relationship to be that of an
employee, whilst the worker may want to be regarded as an independent contractor
providing a service. The University and the worker must determine the relationship up
front in truth and reality.
2.
WHAT DIFFERENCE DOES IT MAKE FOR THE UNIVERSITY?
2.1
The employment relationship gives rise to rights and obligations both at common law
and from legislation. As a minimum the University needs to be fully aware of its
obligations in respect to:
(a) Industrial Law, i.e. awards, termination provisions, leave entitlements etc.
(b) Injury to third parties
(c) Workplace injuries
(d) PAYG Taxation requirements for both PAYG withholding and PAYG instalments
(e) Superannuation
(f) Vicarious liability
Policy on Contractor/Consultant or Employee
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2.2
It is important for all Faculties and Divisions of Charles Sturt University to have a clear
understanding of the ways in which particular workers are categorised so that they can be
prepared for the consequences. These details must be ascertained at the commencement
of the relationship so that both parties are fully aware of their legal obligations.
2.3
It should be noted that whilst the taxation aspect of this area is important in every
engagement, there will be times when other areas as detailed in (2.1) could also present
concerns for the University.
2.4
Please note that only the Division of Human Resources has the authority to issue formal
contracts of employment, except for casual academic engagements, which may be
approved by Heads of Schools.
3.
UNIVERSITY POLICY
3.1
University policy is very clear in its treatment of the engagement of part-time casual
academic staff. In a memo from the Executive Director, Human Resources, 24 July
1991, it is specified that any person performing lecturing or other academic duties in
courses leading to academic qualification must be regarded as an employee of the
University. Payment in this situation must only be made to a person and not to a
company or corporation. This policy is to ensure that no delegation can take place and
that the University is contracting with an individual having the required experience and
qualifications appropriate to the job description. Payment in this situation must be made
through the payroll system. However, where a specialist professional is invited to
present a session/s to students in an award course by an academic who retains
responsibility for the quality of content for the course/subject concerned, the visiting
professional will be paid as a vendor of the University.
3.2
University policy in the treatment of other workers is not so well defined and depends
very much on the interpretation made by the Division of Financial Services. In such
situations reference must be made to the nature of the engagement and how it sits in
relation to both common law and legislation. It is paramount that advice is sought from
the Division of Financial Services prior to any engagement so that the correct
classification is made and both parties are aware of the terms of the engagement. This is
particularly important in the area of taxation where the law is complex, often changes
and is open to interpretation.
Policy on Contractor/Consultant or Employee
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3.3
Where, under the contents of this document, an engagement is classified as a
consultant/contractor and not an employee, then a Standard Agreement for Services must
be completed, attached to an approved Purchase Requisition and forwarded to the
Purchasing Office; a Standard Agreement for Services is available on the Financial
Services web page under Reference Documentation and the specific address is listed for
your convenience (www.csu.edu.au/division/finserv/policies/framepolicies.htm). Normal
purchasing procedures will apply. Existing contracts currently in use in the Division of
Facilities Management and the Office of Research and Graduate Studies will continue to
be used.
4.
DETERMINATION OF THE RELATIONSHIP
4.1
The general rules, which have been developed for determining when a worker is an
employee or independent contractor/consultant, are fairly easy to state. However, the
application of these rules to a factual situation can sometimes prove difficult. It is only
with a detailed examination of the facts relating to each engagement that the relationship
can be adequately determined.
The Australian Taxation Office has released Taxation Ruling TR2000/14 which applies
to entities that pay salary, wages, commissions, bonuses or allowances to an individual
as an employee. This ruling provides guidance as to whether an individual is paid as an
employee for the purposes of the Taxation Administration Act 1953. This act imposes an
obligation on the paying entity to withhold an amount from the relevant payment.
4.2
Distinguishing an employee from an independent contractor/consultant
The relationship between an employer and an employee is a contractual one. It is
referred to as a Contract of Service. This is contrasted with the independent
contractor/principal relationship, which is a Contract for Services. The difference is
essentially that an independent contractor contracts to achieve a result, whereas an
employee contracts to provide his or her labour to enable the employer to achieve a
result.
4.3
An important factor in distinguishing between an employee and consultant relationship
has been that of CONTROL. From a University perspective, where many employees
possess specialised skills and talents, it is often impractical for the University to do more
than notionally supervise the manner in which the job is performed.
4.4
There are many cases relating to the Control Test. Perhaps the most notable from a
University viewpoint is that of Narich Pty Ltd v Commissioner of Pay-Roll Tax (NSW)
84 ATC 4035, where lecturers for a weight control organisation were held to be
employees because the organisation controlled and directed the timing of classes and the
manner in which they were taught.
Policy on Contractor/Consultant or Employee
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4.5
If the Control Test is inconclusive then the degree of INTEGRATION needs to be
investigated. If the workers duties form an integral part of the operations of the
enterprise for which they work, they are more likely to be an employee, than if their job
is just ancillary to the operations.
4.6
Whilst the Control Test and Integration Test may provide strong indications of an
employee/employer relationship, the following guidelines which are by no means
exhaustive will assist in determining each case:

Who has the right to exercise overall control of the manner of performing the task?

Has a company or individual been hired or targeted to perform the task. If the worker
is unavailable (eg. through illness), is a replacement provided, and who provides it?

The nature of the task and the degree of skill required.

The freedom of action given

Who has the power to hire or fire, i.e. is there a right to suspend or dismiss the
person engaged, suggesting an employment scenario?

Who can delegate the function - can the person themselves employ others to perform
the work?

The basis and manner of payment eg. is the payment based (say) on award rates.

The mode of income tax deductions (although this is a circular argument)

Who provides materials, consumables and equipment?

Is there regular or defined hours of work, eg. lecturing staff adhering to a timetable?

Is there a timetable or regular place of work and is this at the employer's premises?

The expressed intention of the parties as the way the contract is worded.

Is there a chance for the worker of profit or a risk of exposure to loss dependent on
the way the task is carried out?

Was a position of ‘ employee’ advertised or was there a tender for the provision of a
service?

What was the basis of the engagement? The reality of the situation must be clear
from the beginning.
4.7
It should be noted that the courts will not hesitate to declare an arrangement to be one of
employer and employee despite the clear expression of the parties to the contrary, where
the weight of other factors contradicts the parties’ own labelling of the arrangement, or
where there has been an attempt to circumvent a legislative provision or create a sham.
“....... the parties cannot create something which has every feature of a rooster,
but call it a duck and insist that everyone else recognise it as a duck.”
4.8
To assist in the resolution of the questions of employee or independent contractor,
PAYG instalments or not PAYG instalments, the Australian Taxation Office has been
Policy on Contractor/Consultant or Employee
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approached with a number of scenarios often faced by the University and have given an
opinion on each of these cases. These responses are detailed hereunder at section 6.
4.9
Summary
The following factors will assist in qualifying a relationship.
Indicative Criteria
Employee
Consultant
1
Is the work performed on a continuing basis and at
the direction of CSU?
Y
N
2
Is the work performed at CSU?
Y
N
3
Are Equipment and Materials provided by CSU?
Y
N
4
Are floor space, telephone, power etc provided by
CSU?
Y
N
5
Is control exercised over the manner in which the
work is to be performed?
Y
N
6
Can unlimited delegation take place?
N
Y
7
Is CSU responsible for scheduling the work?
Y
N
8
Is payment based on, or fixed by the time actually
worked, eg. Hourly, daily or piece rates?
Y
N
9
Is the work an integral part of the operation of CSU,
or merely an accessory to it?
Y
N
10
Are invoices to be submitted by the person performing
the work?
N
Y
11
Does CSU have responsibility for losses occasioned by
poor workmanship or negligence?
Y
N
12
Is cover required for workers' compensation?
Y
N
13
Has the person the opportunity to profit/lose from
sound/unsound management in the performance of
the work?
N
Y
14
Is the substance of the contract to achieve a specified
result?
N
Y
15
Is the service provided by an individual who normally
carries on a business or professional practice
rendering similar services to the public?
N
Y
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5.
THE OBLIGATION TO DEDUCT TAX
5.1
If the relationship between the University and the worker displays the characteristics that
deem the relationship to be one of an employee/employer then, the University has
obligations under the Taxation Administration Act 1953. Section 12-35, Schedule 1,
Part 2-5 Pay As You Go (PAYG) of the Taxation Administration Act 1953 (TAA)
imposes an obligation on the paying entity to withhold an amount from all relevant
payments made. That is, appropriate tax should be deducted and remitted to the
Australian Taxation Office at source before payment is made to the worker. Obviously,
for the payment to be made to an employee it is necessary that there be an employment
relationship between the payer and the payee, as in (4) above.
5.2
Taxation Ruling TR2000/14 provides definitions, which in effect identify the categories
of payments that are subject to these deductions. Perhaps the categories that most affect
the University are:

Salary, wages, commission, bonuses or allowances paid to a person as an employee
within the ordinary meaning of that expression.

Payments made under certain contracts that are wholly or principally for the labour
of the person paid. (a contract is usually regarded as being principally for labour
where the labour content exceeds 50% of the value of the contract).
5.3
Taxation Ruling TR2000/14 provides guidance as to whether an individual is paid as an
employee for the purposes of section 12-35, Schedule 1 Part 2-5 Pay As You Go
(PAYG) of the Taxation Administration Act 1953 (TAA). That section imposes an
obligation on the paying entity to withhold an amount from the relevant payment.
A copy of TR2004/14 can be found on the Australian Taxation Office homepage at
http://www.ato.gov.au/.
Policy on Contractor/Consultant or Employee
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6.
TYPICAL EXAMPLES AND THEIR TREATMENT
6.1 Casual Tutor
Circumstances:

Casual tutor required for a semester for four hours per week.

Has a bona fide consultancy business and requests to be paid on invoice.
Questions:

Does the nature of the work overrule the existence of the bona fide business?

May Charles Sturt University pay the consultancy business or must the individual
be paid and PAYG instalment tax withheld?
Australian Taxation Office opinion:

Almost certainly in this type of case PAYG instalments tax must be deducted. An
individual is being employed in his or her capacity along normal
employer/employee lines. If the University engages a specific person for a fixed
session and desires the right to control and direct that person's work, then the
person is an employee engaged in a personal capacity.

The fact that a person has a bona fide business is not significant either way.
Charles Sturt University has no option in the manner of payment simply because
the person happens to have a consultancy business and wants payment to that
business rather than personally.
6.2 Visiting Professional
Circumstances:

A visiting professional speaking or demonstrating on a particular topic not
exceeding five hours per session for an award course. eg. a doctor to speak about
anatomy.
Question:

Does CSU have to pay the doctor as an individual and deduct PAYG instalment
tax?

Is it appropriate for CSU to pay the practice on invoice?
Policy on Contractor/Consultant or Employee
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Australian Taxation Office opinion:

CSU has no obligation to deduct PAYG instalments tax if the person is a resident
of Australia and an ABN has been provided. If an ABN is not supplied then an
amount of 48.5% must be deducted under PAYG withholding laws. Alternatively
if the person is a visiting non-resident then a “Statement by a Supplier” declaration
should be obtained from the supplier (Australian Taxation Office form NAT3346)
CSU is engaging a specialist professional on a one off or short term basis to lecture
in his or her field of expertise. Neither CSU nor the professional will intend to
establish a relationship whereby the University has power and control over the
professional, as exists in a classic employer/employee relationship.

CSU may pay the practice on invoice. The guest lecturer will retain his or her
status as an arm’s length professional and may be paid on invoice. If the
professional’s practice is releasing him or her for the period of the lecture, then it
may be appropriate for the practice to invoice CSU.
6.3 Mail Package Preparation
Circumstances:

An individual is requested to write a mail package for a particular subject. This
individual is not a current employee CSU. The content of the package is
stipulated, but the person would be required to produce the package in his or her
own space and time, using personal equipment and materials.

The package is requested by a specific date and CSU gives broad guidelines as to
content.
Question:

Is CSU purchasing a package of material from the individual?

Is CSU required to pay the individual and deduct appropriate PAYG instalment
tax?
Australian Taxation Office opinion:

CSU is contracting for a result, i.e. to deliver a mail package at an agreed time for
an agreed sum.

CSU would not be required to deduct PAYG instalment tax. The relationship is
not one of an employee/employer. The person arranges his or her own work
timetable, is not subjected to ongoing control, supervision and monitoring and is
responsible for providing their own resources. The person is also not paid on a
time (hourly) basis. It should be noted that often the contracted fee is based on an
estimated number of hours at a set hourly rate. The fact that this is the agreed basis
of payment is not determinative in assessing the relationship; it is merely a
reasonable and justifiable method of putting a proper value on the work. The
person is to be paid the sum whether it takes more or less hours than that
estimated, and the status of the person would still be that of an independent
contractor.
The provision of an ABN or Statement by Supplier form applies as in 6.2
Policy on Contractor/Consultant or Employee
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6.4 Casual Tutor/Mail Package Preparation
Circumstances:

A casual tutor is employed for four hours per week delivering tutorials.

Person is then asked to write a mail package for a particular subject.

PAYG instalment tax is deducted from payment for the tutorial work
Question:

May CSU pay on invoice for the mail package if the individual has a bona fide
business?
Australian Taxation Office opinion:

The terms of the actual engagement will decide the issue, and the answer may vary
in different cases depending on the stipulated conditions. The comments in (6.3)
may apply here and it is likely that CSU has no obligation to deduct PAYG
instalment tax from the payment.

The fact that the person has a bona fide business is a factor, but not an overriding
factor. See comments in (6.1).

Other factors that may lead to a different interpretation are the number of hours
worked per week and the extent of University facilities used free of charge.
6.5 Presenters
Circumstances:

An individual from another institution is requested to give a presentation to staff at
a training session.

CSU arranges and pays travel, accommodation and incidental costs.

A fee is agreed for the presentation.

A request is received from the presenter on institution letterhead to make payment
to the institution.
Question:

Is it appropriate for CSU to pay the institution?

Should CSU pay the individual and deduct PAYG instalment tax?
Policy on Contractor/Consultant or Employee
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Australian Taxation Office opinion:

It is appropriate for CSU to pay the institution.

The payment does not have to be made to the individual and hence no PAYG
instalment deduction need be made.

Charles Sturt University would expect to receive a valid tax invoice, including
GST, from the institution.
6.6 CSU Employees Working For Another School/Division
Circumstances:

A full-time academic member of staff is asked by a different division to write a
mail package.

The academic has a bona fide consultancy practice.
Question:

May the consultancy practice be paid on invoice despite the individual doing the
work being paid as a full-time employee?

Must PAYG instalment tax be deducted from the payment to the individual?
Australian Taxation Office opinion:

In the circumstances CSU should not pay on invoice. It would seem likely that
PAYG instalment tax should be deducted. The fact that the person is a current
full-time employee of CSU and already under direction and control is an important
factor. Also it may be that the person will be permitted to use CSU facilities and
ostensibly undertake the task concurrently with normal duties. These factors point
to the payment being salary or wages for PAYG purposes, i.e. a payment wholly
or principally for labour to a person who is already an employee, and who carries
out the activities in a place and manner expected of, and with the facilities
available to, an employee.

The fact that the person has a bona fide consultancy practice is a factor, but not an
overriding factor.
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6.7 Student Undertaking Project
Circumstances:

A student is asked to design a cover for a report or design a logo etc. for a nominal
fee.
Question:

Is CSU required to deduct PAYG instalment tax from the payment?
Australian Taxation Office opinion:

PAYG instalment tax would not have to be deducted from the payment. The
contract is one for a result, not a payment based on time for services. The student
arranges his or her own work timetable, is not subject to ongoing control,
supervision or monitoring, and is not paid on a time (hourly) basis.

If the student is not carrying on an enterprise in Australia (ie is not conducting a
business as the task is a “one-off” activity, then a Statement by Supplier
declaration should be obtained from the student.
Alternatively, if the student is carrying on an enterprise in Australia, even if only in
a small way, then the student should provide a valid tax invoice.
6.8 Running Workshops
Circumstances:

A person is a professional painter and has his or her own studio and registered
business name.

He/she is requested to present a workshop.

The workshop runs for five days.
Question:

Is CSU required to deduct PAYG instalment tax from the payment?

If the person was an individual with no registered business name do the
circumstances change?

If the individual requests payment via an invoice from his/her company do the
circumstances change?
Australian Taxation Office opinion:

Many factors are present here. If CSU plans the course, sets the topics, outlines
the expected format, sets the timetable and provides the venue and materials then it
is likely that the relationship is one where PAYG instalment tax deductions must
Policy on Contractor/Consultant or Employee
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be made. Alternatively, if a person is required to devise the program, arrange
topics and timetable and provide materials etc. then the relationship may have the
character of one of result and as such may be outside PAYG instalment tax
requirements.

Whilst a registered business is a factor, it is the nature and terms of the engagement
rather than the background circumstances of the person which decides the issue.

In the case where the workshops are outside the PAYG requirements, then a valid
tax invoice or a statement by supplier form must be submitted by the individual,
otherwise 48.5% must be withheld under PAYG withholding laws.
6.9 Reviewing Thesis
Circumstances:

An individual is asked to review a thesis.

An honorarium is paid
Questions:

Does CSU have an obligation to deduct PAYG instalment tax?

Are the circumstances of the individual significant?
Australian Taxation Office opinion:
 PAYG withholding provisions may apply to the payments for thesis reviews.
 Payments made for thesis reviews have all the hallmarks of income in the hands of the
recipients; they are payments which are expected and are for services rendered.
 While the payments are referred to as honoraria, there seems little doubt that they lack
the essential characteristics necessary to be regarded as honoraria for Australian
income tax purposes. ie., the sums are routinely paid; they are expected by the
reviewer; the sums paid are set according to an established scale and based roughly on
the time and effort involved.
 This is contrary to a true honorarium, ie a payment or gesture on personal grounds; an
ex-gratia payment; a bona-fide “thank you” gift. True honorariums would not be
subject to PAYG withholding laws.
 Australian academics undertaking this work will need to provide CSU with an
ABN,or alternatively complete a TFN notification and be dealt with under those
standard arrangements. An Australian academic is unlikely to have an ABN for
irregular thesis reviewing, and a practical alternative is to agree to be treated under the
TFN arrangements and receive a Payment Summary at year-end.
 Statement by Supplier (NAT 3346) should be obtained from non-residents performing
the work in Australia.
Policy on Contractor/Consultant or Employee
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6.10 Overseas Engagement
Circumstances:

A non-resident of Australia is engaged to perform supervision of distance
education students overseas.
Questions:

Is there an obligation to deduct PAYG instalment tax?
Australian Taxation Office opinion:

The definition of “salary or wages” excludes exempt income. Income derived by a
non-resident from sources wholly out of Australia is exempt income. (ie. not
assessable to Australian tax.)

The source of remuneration under a normal contract of employment or a contract
for service is the place where the duties or services are performed, not the place
where payment might be made.
6.11 Visiting Artists
Circumstances:

A person is engaged as a visiting artist and has his or her own studio and registered
business name.
Questions:

Is CSU required to deduct PAYG instalment tax from the payment?

If the person is an individual with no registered business name do the
circumstances change?

If the individual requests payment via an invoice from his/her company do the
circumstances change?
Australian Taxation Office opinion:

The arrangement would appear to be one very similar to (6.8). If CSU plans the
program, outlines the expected format, sets the timetable and provides the venue
and materials then it is likely that the relationship is one where PAYG instalment
tax deductions must be made. On the other hand, if the artist is required to devise
the program, arrange the material that he or she thinks should be covered, be
available at times that he or she dictates and provide materials etc., then the
engagement may be one of result and, as such, may be outside PAYG instalment
requirements
In this situation provision of an ABN or a Statement by Supplier form will need to
be made.
Policy on Contractor/Consultant or Employee
Page 15

Again, as in (6.8), it is the nature and terms of the engagement rather than the
circumstances of the person, which decides the issue.
6.12 Overseas organisations providing services in an offshore location and
requiring payment to an Australian bank account.
Question:

What is the situation in regard to withholding provisions and ABN notification?
Australian Taxation Office opinion:

In situations such as this the University may experience some difficulty in determining
whether or not the provider of the supply is carrying on an “enterprise in Australia”in the
terms of the GST Act particularly where the supplier appears to have a “permanent
establishment” in Australia eg. an office/home address or an agent name and address. Most
offshore suppliers to the University requiring payment to an Australian bank account
provide an ABN with their invoice and the withholding provisions of the Act do not apply.
In the event that the offshore supplier does not hold an ABN, a Statement by Supplier form
would be appropriate in this instance. However, should the offshore supplier choose not to
supply either an ABN or a Statement by Supplier form, then the withholding provisions of
the Act will need to apply.
7. FURTHER INFORMATION
Further information or clarification on any of the above matters can be obtained from:




Mr R Seaman,
Mr S Smith,
Mr Davin Kendall
Mr Roger Mumford
Management Accountant, Wagga Wagga
Finance Manager (Budget), Albury
Finance Manager (Payables), Wagga Wagga
Taxation Officer, Wagga Wagga
Policy on Contractor/Consultant or Employee
Ext.
Ext.
Ext
Ext
32601
19896
34066
34086
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