Further information
Any queries arising from the application of these Guidelines should be referred to the
Employee Relations Section of Human Resources.
The purpose of these guidelines is to provide direction to staff responsible for the engagement of contractors providing labour services to the University.
These guidelines do not cover issues associated with safety and health as these are covered in the University's guide on Contractor Safety.
The legal and administrative arrangements relating to the engagement of individuals supplying their services to the University can be confusing and easily misunderstood. In many instances, the law will regard an individual who is engaged as an independent contractor as an employee despite the contract, however described. Should this occur, the University may be liable for the obligations relating to pay and conditions under the award or certified agreement, unfair dismissal provisions, pay as you go (PAYG) and payroll tax, workers compensation and superannuation liabilities.
After 1 July 2000 the University will only pay on invoice and will only pay in full those contractors who have an Australian Business Number (ABN). Where a contractor does not provide an ABN, the University will be legally obliged to deduct tax from the payment at the highest marginal rate and remit this amount to the Australian Taxation Office.
There are three forms of contract relevant to this area:
- contract of service between an employee and the University
- contract for service between a contractor and the University, and
- contracts with labour hire firms
By following these guidelines, staff engaging a third party to provide labour services to the University, will assist the University in meeting its obligations in terms of the relevant legislation, decisions and rulings as determined by the courts, Australian Taxation Office (ATO) and the State Revenue Department (SRD). It is important that staff utilise the appropriate form of contract to meet the particular circumstances.
- Contractual/employment relationships
- Forms of contractual relationships
- Deciding on the form of the relationship
- Contracting
- Contracts with labour hire firms
- Contracts with companies
- Consequences of not following these guidelines
Contractual/employment relationships
The ATO has issued a Taxation Ruling (TR1999/13) which makes the following distinctions between the above forms of contractual relationships:
"The relationship between an employer and an employee is a contractual one. It is often referred to as a contract of service (or in the past, as a master/servant relationship). Such a relationship is typically contrasted with the independent contractor/principal relationship that, at law, is referred to as a contract for services. An independent contractor typically contracts to achieve a result whereas an employee contracts to provide his or her labour (typically to enable the employer to achieve a result)…"
"A user of labour or service requirer may contract with a labour hire firm for the provision of labour of a specified kind. The labour hire firm does not contract to perform the work; it merely contracts to provide labour to work under the direction of the user.
The labour hire firm then ascertains the availability of suitable workers on its books. Contacted workers may accept or reject the work offer. On acceptance, a contract is formed between the labour hire firm and each worker."
Forms of contractual relationships
A contract of service creates an employer – employee relationship which attracts employment conditions regulated by:
- Awards
- Certified (Enterprise Bargaining) Agreements or
- Common law
A contract for service establishes a principal – contractor relationship. People engaged under such terms are usually known as independent contractors.
The obligations of the parties to the contract vary depending on whether the person is an employee or an independent contractor. The legal distinctions between these two forms of contract and the clear identification of the employer are very important as it affects:
- who is responsible for the provision of workers’ compensation insurance
- whether PAYG deductions must be made in accordance with the Income Tax Assessment Act and at what marginal rate (employee, ABN or no ABN)
- whether superannuation contributions are payable under the Superannuation Guarantee (Administration) Act
- whether payroll tax is payable
- the conditions of employment such as hours, rates of pay, entitlement to leave, and so on
- termination of employment, including responsibility for any subsequent claims of unfair dismissal
- loss or damage as a result of an individual’s negligence during the course of their employment
It is clear that an employer – employee relationship (and hence the above responsibilities), does not apply between the University and a third party when the University contracts for the performance of work by persons engaged by a labour hire firm.
Whether an individual is a contractor or employee is less clear.
Deciding on the form of the relationship
The legal test for distinguishing a contractor from an employee can be complex and will depend on a range of factors, as well as the particular circumstances of each case. It is important to be aware that the courts will examine the particular contractual relationship in practice and will not be limited to the form of words used to give effect to the relationship.
| Contract of Service (Employer/Employee) |
Contract for Service (Principal/Contractor) |
|
|---|---|---|
| Control over work | Skilled employees may have a high level of independence in the way they work, although the framework within which they work would be set with or by the employer. | Typically, a contractor has a higher level of independence in the way the work is performed, within the limits of the contract for the work. |
| Independence | Employees have a duty to perform work for the employer as directed or in accordance with an employment contract. | The contractor must perform duties in accordance with the contract, but not necessarily in other roles except by agreement. |
| Payment | Based on the period of time at work regardless of whether work is carried out. | Typically payment is according to results without regard to the time taken. |
| Liability | The employer, not the employee is legally liable for the work. | The contractor is legally liable for the work performed under the contract. |
| Commercial risks | The employee generally bears no risks in respect of the work and is not liable to remedy any defective work at their own expenses. | The contractor bears the risks and has the potential to make a profit or loss and is responsible to remedy any defective work at their own expense. |
| Integration in business | The employee works as part and parcel of the employer's business. | The contractor works as part of their own business and may be associated with the operations of another business. |
| Ability to delegate | Employer determines employee's freedom to delegate. | Typically, a contractor has the ability to delegate the work by agreement or otherwise. |
| Tools and equipment | Ordinarily provided by the employer, except when specifically agreed otherwise. | The contractor provides their own tools and equipment. |
| Basis of hiring | Hired on a continuous basis. | Hired for a specific task. |
It is not essential that a contract meet all of the above criteria in order to be considered either a contract for or of service. There may be occasions when it is appropriate to incorporate into a contract for service some of the elements normally associated with a contract of service (eg supply of equipment, place of work). However, the intention to establish a contract for service and the reasons for doing so must be stated at the outset. The terms of the contract must be designed to remove any ambiguity in this respect.
Contracting
Where it is necessary to seek the provision of additional labour services, this may be done by engaging a new employee on a fixed term or ongoing basis. Alternatively, in some cases, it may be more appropriate to engage a contractor. Where this is the case, contracts for service are only to be made between the University and labour hire firms or companies. Such contracts shall not be entered into directly with individuals.
Contracts with labour hire firms
The University requires labour hire firms with which it contracts, to hold an "Employment Agents Licence" as issued by the Ministry of Fair Trading. A contract to provide labour must be established between the University and the labour hire firm. Staff members proposing that a labour hire firm be contracted must sight the labour hire firm's licence and proof of insurance coverage for items such as workers compensation and public liability.
For other than short term needs consideration should be given to employing staff for a fixed term or specified task as this will often be more cost effective in the long run.
Contracts with companies
Before contracting with a company, the University requires that the company must be an Australian Company with an Australian Companies Number (ACN) or a foreign company operating in Australia with an Australian Registered Business Number (ARBN).
A person or contractor conducting business under a registered business name is not the same as a company. Staff members proposing that a company be contracted must sight the Certificate of Incorporation of the company.
Consequences of not following these guidelines
Where these Guidelines are not followed and contractors are not engaged under a valid contract for services, then the University may be liable for:
- award and certified agreement provisions of the University which have not been complied with
- penalties where legislation relating to superannuation, taxation and workers' compensation has not been complied with
- compensation or damages in relation to injury suffered by contractors while providing their services and any other person suffering loss or injury arising from the performance of work by the contractor
- possible claims of unfair dismissal at the conclusion of the work
- PAYG tax and associated penalties for non-compliance with the Income Tax Assessment Act
- deduction from the payment of income tax at the highest marginal rates
- payroll tax where the SRD determines that a contract of service exists because payments made to a company will be deemed wages liable to payroll tax
University information
CRICOS Code: 00126G
