From 1 July 2015, changes will be made to how a worker is defined in the Northern Territory for workers' compensation. The PAYG test applied under the Australian Taxation Office (ATO) laws will now be used to determine who is required to be covered for workers' compensation in the Northern Territory.

This change will make it easier for e​mployers and workers, as there will be one definition to determine tax, superannuation and workers' compensation requirements.

Under the change a worker is:

'An individual who performs work or a service under contract and is in relation to the contract, an employee for the purpose of assessment for PAYG withholding under the 'Tax Administration Act 1953 (Cth)', Schedule 1, Parts 2-5.'

The changes will have no impact for the majority of individuals who will continue to be covered by workers' compensation.

Who is not a worker

The following are examples of individuals who are not considered a worker for workers' compensation purposes.

  • An individual who is an immediate family member of the employer is not considered a worker for that employer.1
  • An individual who is a director (or similar position) of a company is not considered a worker of that business.2
  • An individual employed in voluntary work who receives nothing more than reasonable travelling, accommodation or other out of pocket expenses.
  • An individual employed by a household.3

1 A family member can be covered for workers' compensation by declaring to the insurer the individuals name, nature of employment and remuneration.
2 Directors can be covered for workers' compensation provided the individual's name, nature of employment and remuneration is declared to the insurer. A director will also be required to have PAYG deductions made from their remuneration.
3 An individual who is employed by a householder as a chauffeur, or to cook, clean, iron or to do gardening and earns more than 20% of the NT average weekly earnings is considered a worker.

Who will be affected by the changes?

The changes may affect individuals in the construction and transport industries due to the contracting arrangements used in those industries. Some individuals in these industries will be considered contractors and not workers.

Examples of a contractor include:

  • An individual who supplies their own heavy machinery/substantial plant (for example, crane, delivery van or earthmoving equipment)
  • An individual who employs or subcontracts others to help in completing work or a service under contract
  • An individual who quotes an upfront total price for a job, provides the tools of their trade and who fixes defects at their own expense.

Guidelines and online tools

If you need further assistance, the ATO website has guidelines and online tools to assist you to determine an individual's employee / contractor status.

Mistakes to avoid

When determining whether your worker is an employee or contractor, make sure you don't get caught out by the common myths around:

Having an ABN

Myth: If a worker has an ABN they are a contractor.

Fact: Having or quoting an ABN makes no difference to whether a worker is an employee or contractor for a job.

Just because a worker has an ABN doesn't mean they will be a contractor for every job.

Businesses sometimes request or pressure a worker who is an employee to obtain an ABN in the belief this will make the worker a contractor. Often these businesses attempt to disguise the employment arrangement and make it look like contracting to avoid their PAYG withholding and super obligations.

If the working arrangement is employment, whether the worker has or quotes an ABN makes no difference and will not make the worker a contractor.

To correctly determine whether a worker is an employee or contractor, you need to look at the whole working arrangement and examine the specific terms and conditions under which the work is performed.

Common industry practice

Myth: Everyone in my industry takes on workers as contractors, so my business should too.

Fact: Just because 'everyone' in an industry treats workers as contractors doesn't mean they have got it right.

Ignore common industry practice when determining whether your worker is an employee or contractor.

Short-term work

Myth: Employees cannot be used for short jobs or to get extra work done during busy periods.

Fact: The length of a job (short or long duration) or regularity of work makes no difference to whether a worker is an employee or contractor.

Both employees and contractors can be used for:

  • casual, temporary, on call and infrequent work
  • busy periods
  • short jobs, specific tasks and projects.

To correctly determine whether a worker is an employee or contractor, you need to look at the whole working arrangement and examine the specific terms and conditions under which the work is performed.

80% rule

Myth: A worker cannot work more than 80% of their time for one business if they want to be considered a contractor.

Fact: The 80% rule, or 80/20 rule as it is sometimes called, relates to personal services income (PSI) and how a contractor:

  • reports their income in their own tax return
  • determines if they can claim some business-like deductions.
  • It is not a factor a business considers when they determine whether a worker is an employee or contractor.

Past use of contractors

Myth: My business has always used contractors, so we don't need to check whether new workers are employees or contractors.

Fact: Before engaging a new worker (and entering into any agreement or contract), a business should always check whether the worker is an employee or contractor by examining the working arrangement.

Unless a working arrangement (including the specific terms and conditions under which the work is performed) is identical to previous arrangements, it could change the outcome of whether the worker is an employee or contractor.

If a business incorrectly determined that a worker is a contractor, continuing to rely on this decision would mean the business is incorrectly treating all future workers as contractors when they are employees.

Registered business name

Myth: If a worker has a registered business name, they are a contractor.

Fact: Having a registered business name makes no difference to whether a worker is an employee or contractor for a particular job.

Just because a worker has registered their business name does not mean they will be a contractor for every job or working arrangement.

Contracting on different jobs

Myth: If a worker is a contractor for one job, they will be a contractor for all jobs.

Fact: If a worker is a contractor for one job, it does not guarantee they will be a contractor for every job.

The working arrangement and specific terms and conditions under which the work is performed will determine whether a worker is an employee or contractor for each job.

Depending on the working arrangement, a worker could be an:

  • employee for one job and a contractor for the next job
  • employee and a contractor if completing two jobs at the same time for different businesses.

Specialist skills or qualifications

Myth: Workers used for their specialist skills or qualifications should be engaged as contractors.

Fact: If a business takes on a worker for their specialist skills or qualifications it does not automatically mean they are a contractor.

A worker with specialist skills or qualifications can be either an employee or contractor depending on the terms and conditions under which the work is performed.

Qualifications or the level of skill a worker has (including whether they are 'blue collar' or 'white collar') makes no difference to whether a worker is an employee or contractor.

Worker wants to be a contractor

Myth: My worker wants to be a contractor, so my business should take them on as a contractor.

Fact: Just because a worker has a preference to work as a contractor doesn't mean your business should engage them as a contractor.

Whether a worker is an employee or contractor is not a matter of choice, but depends entirely on the working arrangement and the specific terms and conditions under which the work is done.

If you give into pressure and agree to treat an employee as a contractor, you can face penalties and charges for not meeting your tax and super obligations.

Using invoices

Myth: If a worker submits an invoice for their work, they are a contractor.

Fact: Submitting an invoice for work done or being 'paid on invoice' does not automatically make a worker a contractor.

To correctly determine whether a worker is an employee or contractor, you need to look at the whole working arrangement and examine the specific terms and conditions under which the work is performed.

If, based on the working arrangement, a worker is an employee, submitting an invoice or being paid on the basis of an invoice will not make the worker a contractor.

Contracts

Myth: If a worker's contract has a section that says they are a contractor, then legally they are a contractor.

Fact: If a worker is legally an employee, a contract saying the worker is a contractor will not make the worker a contractor at law.

Businesses and workers will sometimes include specific words in a written contract to say that the working arrangement is contracting in the mistaken belief that this will make the worker (who is an employee) a contractor at law.

If a worker is legally an employee, a contract specifying the worker is a contractor makes no difference and will not:

  • override the employment relationship or change the worker into a contractor
  • change the PAYG withholding and super obligations a business is required to meet.