QUESTIONS:
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2. Receive services from the individual: Does the contract require the individual to provide you with services that you are required to pay for?
Help: Quite simply, someone cannot possibly be your employee if they are not required to provide you with services. - Answer 'no' if the individual only provides you with goods, equipment, a vehicle or other property. - Answer 'no' if you are the one providing the services rather than receiving any services from the individual. - Answer 'no' if you and the individual jointly provide services to a third party and share the revenue (or profits) earned from the third party between you - in that case you would be in a partnership with the individual for tax purposes, and not in an employer/employee relationship with each other nor with the third party. - However you are not in partnership and you should still answer 'yes' if you are entitled to all the revenue from the third party but pay the individual a fee for services, irrespective of how that fee is calculated, eg on a time basis such as hourly, based on a percentage of the revenue or profit - effectively a bonus or commission, or some other way.
3. Results contract: Are payments to the individual under the contract conditional on achieving specified results?
Help: - Examples where the answer is 'yes' are payments on completion of a tiling job expected to take a week, on completion of a window cleaning job carried out for you on one day each month, and on completion of a report expected to take several weeks, on completion of the transportation of your livestock from point A to point B. - Progress payments towards completion of an agreed specified result are equally payments for a result for which the answer is still 'yes'. - A time-based fee, e.g. a charge by the hour or by the day, is still for producing a result if payment is conditional on completing the result. An example is an architect engaged to produce plans for a building who is paid a fee upon completion of the plans (plus any progress payments) for the number of hours of work it took, but is not entitled to any payment if plans are not completed. - A 'yes' answer is conclusive of contractor status, subject to further clarification of the genuineness of the results basis of contracting in the following questions.
4. Measurable deliverable: Is success in achieving the contracted deliverable by the individual able to be measured or assessed?
Help: - A contract is not really for producing a specified result if it cannot be ascertained when the contracted result is achieved or completed sucessfully. - For a payment to be for achieving a result, the agreed result needs to be measurable, i.e. it needs to be able to be ascertained when the contracted result is completed sucessfully. - A contract for example to keep a building or office clean to a professional standard for a period of time is still a measurable deliverable. - By contrast, a general obligation to assist and help complete a project with others is insufficient. - Nor is it sufficient if a specific goal needs to be achieved by a group, and it cannot be measured whether the particular individual satisfactorily performed the part of the total work that individual contracted to do.
5. Liability to remedy defects: Is the individual liable for remedying defective work?
Help: A contract is not genuinely for producing a specified result if the deliverable provided fails to meet the standard expected under the contract but the individual is not liable for remedying the defects in the work at the individual's own cost, e.g. if paint peels within a month of completing a painting job but the service provider is not liable to fix it.
6. Commissions: Are the payments for achieving results in the nature of commissions for achieving sales or for completing repeated similar small tasks?
Help: - Payment on a sales commission basis is arguably often a neutral factor in determining employee or contractor status, but it is still considered a results basis of payment for PSI analysis. - Payment for the number of repeated short similar small tasks completed is also akin to a commission, and the answer is still 'Yes'. Examples include payment per garment sown by an outworker, per bucket of fruit picked, per CBD bicyle courier delivery, per one hour language translation session, and per group market reserach interview completed.
7. Time-basis of payment: Are there payments made on the basis of time? e.g. hourly, daily, weekly, monthly.
Help: Time-based payment is an indicator of employment. Do not include any on-call retainers in this question - they are addressed later.
8. Leave payments: Is the individual paid for days of sick leave, annual leave or personal leave when no work is performed?
Help: Leave payments are indicative of employment. Answer 'no' if the individual is responsible for finding a replacement worker for days off for whom the individual is responsible for paying.
9. On-call retainers: Is the individual paid a retainer to be available for work if called upon?
Help: On-call retainers are a neutral factor.
10. Retainers to commission agents: Is the individual paid a time-based retainer for the time worked to supplement commission income?
Help: Commission retainers are indicative of employment.
11. Are time-based payments and retainers combined less than 25% of the total payments to the individual?
12. Equipment: Ignoring minor and incidental items (e.g. with a total value less than $3,000), does the individual supply significant equipment in order to perform the job?
Help: - It is a neutral or largely neutral factor if no significant equipment and materials are required for the job, or if you supply the equipment. It is indicative of contractor status if the individual supplies substantial equipment. - Note that for a courier job a bicycle is considered a minor item that is ignored, but a motorcycle, car, ute or van should be considered substantial. Certainly a truck is substantial equipment.
13. Value of labour component: Is the labour value of the work less than the value provided by the equipment?
Help: An individual is unlikely to be an employee if most of the value of the work is attributed to non-labour components, the fee cannot be PSI and the non-labour proportion of the fee cannot be subject to payroll tax.
14. Separate business premises: Does the individual provide the services from business premises that the individual has exclusive use of (i.e. not a shared area) and which have a separate signposted entrance and are phsically separate from any residence?
Help: A garage or enclosed workshop with its own exterior door is physically separate from the residence.
15. Personal service required: Does the contract explicitly require the individual to perform all the contracted work personally without any right for the individual to delegate any of the contracted work to his/her own workers?
16. Delegation: Does the contract permit the individual to delegate at least some of the work by engaging another person or persons (whether as his/her own employee or his/her own sub-contractor) to perform at least some of the contacted work and for whom the individual is resposnible for paying and responsible for the workmanship of?
Help: - The answer is 'no' if the only poermitted delegation is back to the principal’s own employees or contractors whom the principal still pays. - The answer is also 'no' if the only assistance is for administrative matters not related to completion of the contract – e.g doing the individual's bookkeeping. - It does not matter that the right to delegate may be limited to periods of leave, sickness or excessive work volume. It would still be a right to delegate and the answer is still 'yes'.
17. Has the right to delegate been in fact exercised?
18. Is there a requirement for consent from the principal before delegating?
19. Is the principal required to give consent to delegation where the request is reasonable?
20. Does the agreement permit the individual to provide the services instead through his/her own family company or family trust?
21. Reservation of power of control: Does the contract allow the principal to subsequently give any reasonable direction or set any reasonable policy that the individual is required to comply with?
Help: - The contract may leave it open to the individual to determine how to perform the work, or the contract may prescribe in great detail the manner in which the work is to be performed but otherwise leave any remaining details entirely up to the individual. Neither is a reservation of a power of control and the answer is 'no'. - Nor does a contractual requirement to abide by standards set by an industry body in performing the work, e.g. industry safety, quality and ethical standards indicate that the principal has reserved a power of control. The answer would still be 'no'. - Rather what is important is if the principal has an overriding right to give any additional reasonable direction or set any reasonable policy over and above those set in the contractual terms - the answer is then 'yes', whether the principal in fact exercised that power or has not done so but has a capacity to do so if the need arises. - Power to give directions and set additional policies that were not set in the contractual terms is indiciative of employment, but that indicator is still subject to the intended characterisation of the arrangement as either employment or independant contracting (asked later). The intended characterisation allows the breadth of the power to be read down in accordance with that intention.
22. Attendance: Does the individual need to regularly attend the principal's business premises in performing the contracted work?
Help: - Answer 'yes' if attendance is on most work days for at least for part of the day. - The principal's premises would include a major building site where the principal is the head contractor.
23. Ongoing function (over 180 days per year): Is the function that the individual performs an ongoing requirement for the principal that is ordinarily required by the principal for more than 180 days each year?
24. Training: Has the individual been trained on the principal's policies, internal procedures and way of doing things?
25. Uniform, business cards, stationery: Does the individual wear uniform or a badge or have business cards or stationery that identifies the individual as being a part of the principal (as opposed to only an agent for the principal)?
26. Permanence of hire: Is the contracted duration of work lengthy, e.g. either permanent or for or an intended duration of at least two years?
27. Work frequency (over 90 days): Did the individual (and any of his/her own workers who helped perform work under the contract) collectively perform work for the principal on more than 90 days during the financial year?
Help: - Exclude days on which a retainer was paid but no work was performed. - if work of a similar nature is performed by the individual or any off his/her own workers both under this contract and another contract for you, then consider the contracts together in counting the days on which work was performed.
28. Australian Business Number (ABN): Has the individual quoted an ABN? (If the individual is a contractor, then he/she should be quoting an ABN.)
29. Invoices: Is the individual only paid for invoices that are issued for the work?
30. Special industries, jobs and hirers: Does the individual work in the broadcasting, sports, music, entertainment, domestic home care, home door-to-door sales or insurance sales industries, as a religous practitioner, or for a labour hire agency?
Help: Special SG, payroll tax or PSI rules apply in these circumstances which are not considered by this tool.
31. Director: Is the individual engaged under the contract to serve on the managing board of the principal? (e.g. as a director in the case of a principal that is a company)
32. Intended characterisation (employment): Does the contract state that the individual is employed by the principal?
Help: A written contract that is intended to constitute employment will virtually always say the individual is employed. Very often this statement will be in the offer letter sent to the individual to sign and return.
33. Intended characterisation (independant contractor): Does the contract state that it is intended to be an independant contractor relationship, i.e. not employment?
Help: An intention that the individual is an independent contractor may not be conclusive, but often is if other factors are ambiguous about the nature of the relationship.
34. Personal Services Business determination: Has the ATO issued the individual with a Personal Services Business (PSB) determination that is applicable for the year.
Help: - A PSB determination is positive recognition by the ATO that the individual is running their own business. - However, a PSB determination is not necessarily conclusive of contractor status for all tax purposes because some individuals work in dual capacities as an employee and as a contractor for different clients, e.g. a doctor with his/her own practice but who also works as a hospital employee part-time. - If the other party has obtained a PSB determination from the ATO, we expect and assume that you ought to reasonably be able to get a similar determination from the payroll tax authority, but that cannot be guaranteed.
35. More than one significant client: Does the individual earn 20% or more of its services income for the financial year from a second or greater number of unrelated entities?
Help: - In working out whether the 20% threshold is reached, disregard services income earned by the other party as a PAYG employee or as a director. - To be conservative, answer 'No' if unsure whether the 20% threshold is reached.
36. Own clients from advertising to the public: Did the individual gain at least one of its clients that it provides services to from advertising to the public or a section of the public.
Help: Do not count clients of a labor hire agency (or other work arranger) that organised for the individual to provides the services directly to the client.
37. Significant portion of work done by second individual: Did the individual use a second individual or greater number fo individuals to perform at least 20% of the work (by market value) needed to earn its total services income for the financial year?
Help: - Consider work by the individual for all its clients, not just work done for you. - In working out whether the 20% threshold is reached, disregard services income earned by the individual as a PAYG employee or as a director. - To be conservative, answer 'No' if unsure whether the 20% threshold is reached.
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