5 tests to determine if someone is a contractor or worker
By Kathy Li, Account Manager, Aegis Risk Management Services
A lot of employers do not include contractor payments when determining their WorkCover
premiums, because they believe that they do not have to cover them in their own
WorkCover policy. Just because a contractor has their own ABN or has their own WorkCover
policy does not automatically exempt them from being covered under the principal's work
cover policy.
We need to have a look at what those contractors are doing and who has the ultimate
control over those contractors, to determine whether they should be considered workers for
the principal or whether they are running an independent business.
To help you determine whether the people working for you are considered contractors or
workers for the purposes of your WorkCover policy, here are 5 tests to apply to your
situation to determine if you’re paying the correct premium or not.
Test 1: The Control Test
Quite simply, we ask who has control over the contractors. Are they working under the
direction of the principal, or do they have their own control over what they do and how they
do it? Contractors tend to have control over their own work, will make decisions about what
needs to be done, how it’s done, when it is done and whether the contractor can delegate
the work to other people. Whereas if you the principal has the control, that would imply
that they are indeed deemed a worker.
Test 2: The Results Test
The second thing we look at is the Results Test. That is, whether the contractor is getting
paid by the results that they have achieved, or whether they are paid by an hourly rate.
Contractor situations tend to be results-based, whereas an hourly rate might suggest a
worker relationship.
Test 3: The Risk Test
If something goes wrong, does the contractor need to rectify the issue at their own expense,
or is it the principal’s responsibility to rectify the issue with the client? Again, if responsibility
rests with the worker, that would imply they are a contractor, whereas if you the principal
must rectify the problem or organise for the issue to be rectified, this is another indicator
that they would be deemed a worker for the purpose of determining your cover.
Test 4: The Genuine Business Tests.
Here we look at whether the contractor generates any goodwill under the contractor's
business, or whether the goodwill is generated under the principal's business. Does the
contractor advertise their business anywhere? Who gets the credit from the work that they
are doing, from a business perspective and which business enjoys the subsequent word-ofmouth promotion after the job is complete?
Test 5: The Integration Test
Finally we look at whether the contractor is presented to the public as being part of the
principal's business or whether they are representing their own business. What’s on their
polo shirt when they do the work? Do they drive vehicles with your business logo or their
own business logo? Are they telling clients that they work for your business or their own
business?
Those five tests are the methods we use to determine whether the contractor is running an
independent business, or they are actually deemed a worker for the principal.
If all the tests come back or the majority of the tests come back saying that they should be
the worker of the principal, the principal has the obligation to cover those contractors and
the principal's WorkCover policy. That means they have to include the payments to
contractors, less any payments in relation to the tools or materials as part of the contractor
payments.
Remember, just because the contractor has their own ABN, and even if they have their own
WorkCover policy, it doesn't automatically exempt them from being the worker of the
principal. To avoid some surprise fees and penalties down the road, apply these 5 tests to
your situation to make the right decisions.