Is my Contractor Really an Employee?

Engaging contractors to perform specialist functions within our businesses is a common practice.

However, the process of determining whether a contractor is a contractor or employee is a little more complicated. That is because many State Government Workers Compensation definitions differ from the guidelines provided by the Australian Taxation Office (ATO).

The ATO publish a list of common “myths” that are often adopted as “guidelines” to determine contractor status. Some of these “myths” are:

  • If a worker has an ABN they're a contractor
  • A worker cannot work more than 80% of their time for
  • If a worker has a registered business name, they're a contractor
  • If a worker submits an invoice for their work, they're a contractor.

In NSW the State Government, through their iCare Workers Compensation System, provides a host  of guidelines for assessing the status of contractors and employees. These are...

Deemed Workers:

They include but are not necessarily limited to, outworkers, salespersons, canvassers, and collectors, contractors under labour hire service arrangements, rural workers, boxers, wrestlers, referees and entertainers.


A contractors is more likely to be engaged to carry out a particular task using their own skill and judgment, employ others, delegate or sub-let work to another, be paid on the basis of a quotation for the job, supply their own tools and materials, carry on an independent business in their own name or under a business or firm name.


A worker is more likely to be directed by the employer regarding work to be performed and the time and manner in which it is performed, be required to actually carry out the work, be paid on a time basis, have tools and materials supplied by the employer, work exclusively for a single employer, be affected by PAYG tax arrangements.

They also provide this warning:

A person may have been hired as a contractor and be a contractor for other purposes such as tax, but still be a worker for the purpose of workers insurance. The status of a person for tax purposes bears no direct relationship to that person's status as a worker for workers insurance purposes.

To complicate matters further the Fair Work commission also provides a set of guidelines. As a business person these variables make the process of determining employee/contractor status very complicated.

However, there are tools supplied by these organisations to simplify the process.

The ATO has an Employee/contractor decision tool. It can be accessed via this link:

In NSW the Workers Compensation division of iCare provides a Worker Status Tool via this link:

Fairwork Australia provide a plethora of information via this link:

Other States do provide similar services and you should check with your own Government web-sites.

Completely confused? Yes of course you are – and so are we!

So what’s the solution

Because penalties for engaging employees as contractors are very severe it is definitely not worth risking it.

By making your own determination. But ignoring it and saying “we’ll be right” is not the answer.

Engaging a professional to assess your individual circumstances is probably the safest option.

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This communication contains general information only and is not a financial product or service specific to yourself.