Contractors and workers guideline

Step 1 only applies if you have hired a sole trader to do the work.

Check whether the person who actually does the work for you fits all or most of the following descriptions:

• The person performs the work under your direction and control on an ongoing basis.
• The person generally works standard or set hours under your direction.
• The person cannot subcontract/delegate the contract work or pay someone else to do the work.
• The amounts payable by you for the work are for the time worked, a price per item or activity, or a commission rather than for a result achieved based on the quote provided.
• You provide all or most of the equipment, tools and other assets required to complete the contract work, or you provide an allowance to, or reimburse the sole trader.
• The sole trader is not operating independently of your business but works within and is considered part of your business.

If all or most of the above factors apply to the working agreement or contract, then it is likely that WorkSafe will consider the sole trader to be your worker. None of these factors are definitive. WorkSafe will consider the whole of the relationship between you and the person doing the work.

You should check this with WorkSafe or your WorkSafe agent.

Now go to step 2: even if the sole trader is not your worker under step 1, they can still be your worker under step 2.

You should apply Step 2 if –

• you have hired a sole trader to work for you and you do not believe that the sole trader is your worker under step 1 (or you are not sure whether they are your worker), or
• you have contracted with a company, trust or partnership for work to be done.

How to apply step 2:

Step 2 has four main parts:

• First, you must identify the relevant period(s) (see part A below);
• Second, you must then check whether the conditions apply for each relevant period (see part B below).
• Third, if you believe the contractor is likely to be your worker (after applying parts A and B) but you also believe, based on the factors discussed in part C below, that they are carrying on an independent business while providing services to you, you should contact WorkSafe and ask it to determine whether the contractor is carrying on an independent business.
• Fourth, if you believe the contractor is your worker (after applying parts A, B and C), then you should calculate the correct remuneration for the worker (See Part D below).

Part A Identify the relevant period(s)

There are two main steps for identifying relevant period(s), as follows:

First, you need to identify each financial year in which the services are or to be provided by the contractor under the contract. The contract can be written or verbal.

Second, if the services are or to be provided in two or more consecutive financial years, you also need to identify the first 12 months and the last 12 months (if known) in which the services will be provided.

Each financial year (1 July to 30 June) or 12 month period is called a 'relevant period'.

Example 1

If the work under the contract starts on 1 February 2016 and finishes on 30 June 2016, then the services would be provided in the 2015/16 financial year. So the relevant period would be the 2015/16 financial year (1 July 2015 to 30 June 2016).

Example 2

If the work under the contract starts on 1 August 2015 and finishes on 1 March 2017, then the services would be provided in two consecutive financial years. Therefore, the relevant periods would be –

• 1 August 2015 to 1 August 2016
• The 2015/16 financial year
• 1 March 2016 to 1 March 2017
• The 2016/17 financial year

Example 3

If the work under the contract starts on 1 November 2017 and finishes on 1 December 2020, then the services would be provided in four consecutive financial years (i.e. two or more consecutive financial years) . Therefore, the relevant periods would be –

• 1 November 2017 to 1 November 2018.
• The 2017/18 financial year
• The 2018/19 financial year
• The 2019/20 financial year
• 1 December 2019 to 1 December 2020
• The 2020/21 financial year

Part B: check the conditions apply for each relevant period

Second, check whether all of the following conditions apply to the contract for a relevant period -

1. The sole trader, company, trust or partnership is doing work in or for your business, and
2. The same individual will personally be performing at least 80% of the overall contract work, and
3. The amounts payable by you to the sole trader, company, trust or partnership will be mainly for the supply of labour (rather than the supply of equipment or materials), and
4. Those amounts payable by you will be at least 80% of the overall gross income earned by the sole trader, company, trust or partnership from all sources, for services of the same kind.

If all of the four conditions apply for the relevant period, then WorkSafe is likely to consider the individual to be your worker for the relevant period (unless the exception in part C applies).

If one or more of the four conditions do not apply for the relevant period, then WorkSafe is likely to consider that the individual is not your worker for the relevant period.

You should check this with WorkSafe or your WorkSafe agent.

It is important that you do a separate check for each relevant period because the results may differ depending on the particular period.

Part C: Exception – independent business

Even if the four conditions in step 2 above apply for the relevant period, the individual will not be your worker for that period if WorkSafe decides that the contractor is carrying on an independent business while providing services to you. Whether a contractor is carrying on an independent business requires consideration of whether the contractor is carrying on a business which can be said to be truly independent of your business.

If, after applying Parts A and B, you believe the contractor is likely to be your worker, but you also believe, based on the factors set out below, that they are carrying on an independent business while providing services to you, you should contact WorkSafe and ask it to determine whether the contractor is carrying on an independent business.

If you do not believe that the contractor is carrying on an independent business, you do not need to ask WorkSafe to make a determination.

To determine whether a contractor is carrying on a business which is independent of your business, you should consider the following factors. No one factor is decisive:

• Is the contractor's business subject to control or subordination by you? For instance, do you have control over who is employed by the contractor or over the manner of performance of work?
• Does the contractor's business depend upon your business for its existence?
• Does the contractor regularly enter into arrangements at the same time (or one after the other) with different hirers?
• Does the contractor hold itself out as available to work for others? (i.e. does the contractor advertise – by tender or word of mouth – that they are available to perform contractor services; does the contractor have independent branding; does the contractor describe itself as part of your business?
• In operating their business is the contractor generating goodwill or other saleable assets?
• Does the contractor have financial or other systems supporting its offering of services?
• Does the contractor usually engage staff or employ sub-contractors?
• Is it you or the contractor who renders accounts to customers?
• What is the method of payment to the contractor?

Part D: Calculating Remuneration

You must calculate the correct remuneration for any contractor that (after applying Parts A, B and C) should be treated as your worker.

1. Calculate the contract payment

Calculate the total payments made to the contractor during the relevant period. This includes any labour and non-labour components (such as payment for materials).

2. Deduct GST

Where a contractor has charged you GST, deduct this amount from your total.

3. Consider whether a prescribed deduction applies.

You can deduct an approved non-labour component from the total if, during the relevant period, the following apply:

1. the contractor falls within one of the professions or trades in the following table;
2. the contractor provides their own materials, goods or equipment which have not been purchased from you, the employer; and
3. the amounts paid or payable to the contractor for the relevant period include amounts in respect of those materials or equipment (non-labour component).

If the contractor does not fall within one of the professions or trades in the table below, but they still satisfy parts (b) and (c), you may still be eligible for a deduction. Contact WorkSafe Victoria in writing for guidance at: [email protected].

Type of contractor	Approved Deduction
Architects	5%
Bricklayers	30%
Building Supervisors (who provide their own vehicles and are required to supervise and inspect more than six different building sites each 7 day period)	25%
Cabinet makers	25%
Carpenters	25%
Carpet layers	25%
Computer programmers	5%
Draftspersons	5%
Driving instructors who provide their own vehicles	30%
Electricians	25%
Engineers	5%
Fencing contractors	25%
Painters	15%
Plasterers	20%
Plumbers	25%
Resilient floor layers	37%
Roof tilers or slaters	25%
Tree fellers	25%

The approved deduction applies to the entire remuneration amount for that contractor. For example, if the total contract payment made to a cabinet maker during the relevant period was $10,000 (excluding GST), once the deduction of 25% is applied the remuneration will now be $7,500 for the purposes of WorkCover insurance.

4. Determine the total remuneration amount

The total remuneration amount will be the total contract payments, minus GST, and minus any prescribed contractor deductions.