Can I claim workers' compensation if I am an Independent Contractor?
In some cases, yes you can. Just because an employer calls you an Independent Contractor does not mean that you actually are considered to be such at law - even if you have signed a contract stating this. It may be the case that, under workers' compensation legislation or at law, you are actually a "worker" or "employee" and not an Independent Contractor at all.
Recent amendments to workers' compensation legislation in Queensland have placed tighter restrictions on who is a "worker" for the purposes of establishing entitlement to claim workers' compensation in Queensland.
To be considered a "worker" under the Workers' Compensation & Rehabilitation Act 2003, and therefore entitled to claim workers' compensation payments, you need to show that you work under a contract, and in relation to that work, you are an "employee" for the purposes of assessment for PAYG withholding under the Taxation Administration Act 1953.
There are also, stipulated at Parts 1 and 2 of Schedule 2 to the Workers' Compensation & Rehabilitation Act 2003, some specific circumstances where a person will be considered a "worker" under the Act and when they will not be considered a "worker", as follows:
Part 1 - Persons who are "Workers"
- A person who works a farm as a sharefarmer is a worker if the sharefarmer does not provide and use in the sharefarming operations, farm machinery driven or drawn by mechanical power; and the sharefarmer is entitled to not more than 1/3 of the proceeds of the sharefarming operations under the sharefarming agreement with the owner of the farm.
- A salesperson, canvasser, collector or other person(salesperson) paid entirely or partly by commission is a worker, if the commission is not received for or in connection with work incident to a trade or business regularly carried on by the salesperson, individually or by way of a partnership.
- A contractor, is a worker if-
(a) the contractor makes a contract with someone else for the performance of work that is not incident to a trade or business regularly carried on by the contractor, individually or by way of a partnership; and
(b) the contractor-
(i) does not sublet the contract; or
(ii) does not employ a worker; or
(iii) if the contractor employs a worker, performs part of the work personally.
- A person who is party to a contract of service with another person who lends or lets on hire the person’s services to someone else is a worker;
- A person who is party to a contract of service with a labour hire agency or a group training organisation that arranges for the person to do work for someone else under an arrangement made between the agency or organisation and the other person is a worker;
- A person who is party to a contract of service with a holding company whose services are let on hire by the holding company to another person is a worker.
Part 2 - Persons who are not "Workers"
- A person is not a worker if the person performs work under a contract of service with-
(a) a corporation of which the person is a director; or
(b) a trust of which the person is a trustee; or
(c) a partnership of which the person is a member; or
(d) the Commonwealth or a Commonwealth authority.
- A person who performs work under a contract of service as a professional sportsperson is not a worker while the person is-
(a) participating in a sporting or athletic activity as a contestant; or
(b) training or preparing for participation in a sporting or athletic activity as a contestant; or
(c) performing promotional activities offered to the person because of the person’s standing as a sportsperson; or
(d) engaging on any daily or other periodic journey in connection with the participation, training, preparation or performance.
- A member of the crew of a fishing ship is not a worker if-
(a) the member’s entitlement to remuneration is contingent upon the working of the ship producing gross earnings or profits; and
(b) the remuneration is wholly or mainly a share of the gross earnings or profits.
- A person who, in performing work under a contract, other than a contract of service, supplies and uses a motor vehicle for driving tuition is not a worker.
- A person participating in an approved program or work for unemployment payment under the Social Security Act 1991(Cwlth), section 601 or 606 is not a worker.
- A person is not a worker if-
(a) the person works for another person under a contract; and
(b) a personal services business determination is in effect for the person performing the work under the Income Tax Assessment Act 1997 (Cwlth), section 87-60.
However, in some cases, the type of contract and some of the indications surrounding the contract of engagement for the work can make it difficult to decipher whether the contract that exists is a contract of service (Employer/Employee relationship) or a contract for services (Principal and Independent Contractor).
To determine this issue in such case, the statute says that the workers' compensation insurer is to look to who is considered to be an employee for the purposes of assessment for PAYG withholding under the Taxation Administration Act 1953 (Cwlth). In making a determination as to whether a party is an employee or an Independent Contractor, the key indicators that will be considered are those established by the Courts at Common Law and as set out in Taxation Rulings, as follows:
- Terms of the Contract for performance of the work - when considering whether you have been engaged to undertake the work as an Independent Contractor or as an employee, the terms of any contract between the parties will be an important consideration in determining this issue. However, just because the contract states that the party performing the work is an Independent Contractor does not mean that it will be accepted this is really the true relationship between the parties. All of the terms of the contract, both express and implied, the effect of those terms, as well as the circumstances surrounding the making of the contract will be taken into account.
- Control - how much control are you subjected to when carrying out the work ? This is the classic test used by a court to determine whether an employer/employee relationship exists. This does not mean continual supervision, direction and overseeing. What factors are considered include:
- Is there set direction as to when and where the work is to be done;
- Is there specified direction as to how to the work is to be done;
- Is the work that is being done the very essence of the business being conducted by the employer;
- Has the employer the ultimate authority over your work performance, so that you are subject to the employer's orders and directions.
- Do you operate on your own account or in the business of the payer? If you operate under the business of the person employing you, rather than under your own account, then it is most likely a case of employer and employee rather than a contract for the services of an independent contractor.
- "Results" contracts - where the substance of a contract is to achieve a specified result, there is a strong (but not conclusive) indication that the contract is one for services and you are an Independent Contractor. In contracts to produce a result, payment is often made for a negotiated contract price, as opposed to an hourly rate. For example, when we talk about a specified result we mean engaging someone to carry out a service for a set price, like engaging a painter to paint your house – he gives you a set price. Or, where a person is paid on the number of head of cattle he delivers, or upon the volume of timber delivered. Just because a worker is paid other than by way of an hourly rate does not mean they are an Independent Contractor and not an employee, and vice versa. For example, a real estate agent may be an employee of a Real Estate Agency but he may be paid by way of commission on sales only. Similarly, a solicitor may be engaged to undertake repeated conveyancing work for a business paid at an hourly rate, but that does not mean the solicitor is going to necessarily be an employee of that business who has engaged them. The whole of the relationship and all of the key indicators have to be considered.
- Whether the work can be delegated or subcontracted - where there is the capacity to engage others to do the work, this a significant factor deciding whether a worker is an employee or an Independent Contractor. If you are engaged to do the work yourself and it is not open for you to delegate the work out to another party, then this is a key indicator that you are an employee and not an independent contractor. You may be an employee and delegate your work to another employee, but unless you are obliged to meet the wages of the co-worker for doing the work delegated to them, then you are most likely acting within the realms of an employee and not an Independent Contractor.
- Are you required to supply your own tools and pay your own business expenses ? If you are expected to undertake the work using your own tools and equipment then this may indicate you are an Independent Contractor rather than an employee. For example, the painter who you engage to paint your house brings his own paint brushes, tools and equipment with him to do the job and you are not expected to provide them to him. The painter is an independent contractor. However, there are some cases where tradesman or professional workers do use their own tools in the course of their employment as an employee, e.g. hairdressers are often expected to have their own scissors, hair dryers, combs and brushes and sometimes carpenters are expected to have their own tools and tool belt. So just because you may be required to provide tools or your own vehicle, does not of itself mean you will be determined to be an Independent Contractor. All of the circumstances of employment have to be considered when determining whether it is a case of employer/employee or independent contractor.
- Obligation to rectify defective work – Where a person doing the work is expected to rectify, free of charge, defective work performed by them, then this is usually the mark of an Independent Contractor.
- Risk - where the person undertaking the work bears little or no risk of having to bear the costs of any injury or damage resulting from a defect in the work, then this is an indicator that they are most likely an employee rather than an Independent Contractor. Evidence of an Independent Contractor is that the person undertaking the work holds their own insurances for defective work and any injury or damage resulting from the defective work.
- Working under an ABN Number - although undertaking the work under an ABN number is a strong indicator of an Independent Contractor, it is not definitive. Where it is a requirement by the employer that a worker has an ABN number when engaging them to perform the work, does not mean it will automatically be accepted that the relationship of employer/employee does not exist. All of the circumstances of the employment will be considered in making such a determination.
- How payment for the work is made - if payment for the work is made to an entity separate from the person performing the work, this may be an indicator of an Independent Contractor although not wholly determinate. If it is a sham payment to avoid the relationship of employer/employee then this will be investigated by looking at all of the other circumstances of the engagement of the person performing the work. For example, if payment is made to a company for whom the person performing the work is employed, then the person performing the work may not be an employee of the payer but may be an employee of the company that is being paid for the work.
- Other indicators - where the person performing the work has entitlements to sick pay, long service and annual leave, this indicates the relationship is one of employer/employee. However just because these entitlements are absent does not automatically mean that the worker is an Independent Contractor. Also, where the person engaging the person performing the work, has the right to dismiss or suspend the person engaged, then this too can be an indicator of an employer/employee relationship. Also, a requirement for the worker to wear a uniform bearing the insignia of the employer, this too is an indication of an employer/employee relationship. These are not all of the other indicators that are looked at when determining what relationship exists between a party engaging services and the person doing the work. All of the circumstances surrounding the work being performed will be considered.
- It is interesting to note that when considering who is an "employee" for Taxation purposes, the Australian Taxation Office also makes reference to who is considered an "employee" for the purposes of compulsory Superannuation obligations in Australia. Under Commonwealth Superannuation legislation, an "employee" includes the following:
- A person who is entitled to payment for the performance of duties as a member of the executive body of a body corporate;
- A person who works under a contract that is wholly or principally for the labour of the person. Under Superannuation legislation, a contract is considered to be wholly or principally for the labour of an individual engaged, and they will be considered an "employee" if:
- they are paid (either wholly or principally) for their personal labour and skills;
- they perform the contractual work personally (there is no right of delegation); and
- they are not being paid to achieve a specified result,
- Members of the Commonwealth and State Parliament, members of the ACT Legislative Assembly and members of the NT Legislative Assembly;
- A person who is paid to perform or present, or to participate in the performance or presentation of, any music, play, dance, entertainment, sport, display or promotional activity or any similar activity involving the exercise of intellectual, artistic, musical, physical or other personal skills, or a person who is paid to provide services in connection with any of these activities;
- A person who is paid to perform services in, or in connection with, the making of any film, tape or disc or of any television or radio broadcast;
- A person who holds, or performs the duties of, an appointment, office or position under the Constitution or under the law of the Commonwealth, State or Territory;
- A person who is otherwise in the service of the Commonwealth, of a State or of a Territory, including service as a member of the Defence Force or as a member of the police force;
- A person who is a member of an eligible local governing body;
- For the purposes of compulsory Superannuation obligations in Australia, the following are considered not to be an "employee":
- A person who is paid to do work wholly or principally of a domestic or private nature for not more than 30 hours per week is not an employee in relation to that work. An example of this is where you engage a domestic cleaner to come and clean your house for 3 hours a week. Whether a person who is paid to do work of this nature for more than 30 hours per week is an employee will depend on whether the circumstances of their engagement indicates that of Independent Contractor or employee (as discussed above) or they are stipulated as being and "employee" as set out above;
- Where an individual performs work for another party through an entity such as a company or trust, there is no employer-employee relationship between the individual and the other party for the purposes of Superannuation legislation, either at common law or under the extended definition of employee. This is because the company or trust (not the individual) has entered into an agreement rather than the individual. However, the individual may be the employee of the intermediary company or trust, depending on the terms of the arrangement.
- Where a partnership has contracted to provide services, then the person who actually does the work is not the employee of the other party to the contract. This is so even if the worker is a partner and even if the contract requires the partner to do the work. However, if partners contract outside the partnership in their own personal capacity to provide their labour to fulfil a contractual obligation, they can be employees of the other party to that contract;
- A partner in a partnership is not an employee of the partnership;
- An arrangement between parties that is structured in a way that does not give rise to a payment for services rendered but rather a payment for something entirely different, such as a lease or a bailment, does not give rise to an employer/employee relationship for the purposes of Superannuation legislation.
The Australian Taxation Office website has set up a Tool that you can use to assist you in working out if your employment is likely to be seen as that of an employee or Independent Contractor. If you wish to use this Tool, click on the following link to the Australian Taxation Office website employer/contractor tool.
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