By Kathy Li, Account Manager, Aegis Risk Management Services
Many employers neglect to include contractor payments when declaring their remuneration for their WorkCover premiums. This is due to a mistaken belief that contractors do not have to be covered under the employer’s WorkCover policy.
However, just because a contractor has their own ABN or has their own WorkCover policy does not automatically exempt them from being covered under the principal’s work cover policy.
In determining if payments to contractors should be declared as part of a company’s rateable remuneration, we need to have a look at what those contractors are doing and who has the ultimate control over those contractors.
This will play a significant part in determine whether they should be considered workers for the principal or whether they are running an independent business.
To help you determine whether the people working for you are considered contractors or workers for the purposes of your WorkCover policy, here are five tests to apply to your situation to determine if you’re paying the correct premium or not.
Test 1: The Control Test
Quite simply, we ask who has control over the contractors. Are they working under the direction of the principal, or do they have their own control over what they do and how they do it? Contractors tend to have control over their own work, will make decisions about what needs to be done, how it’s done, when it’s done and whether the contractor can delegate the work to other people. Whereas if the principal has the control, it would imply that they are indeed deemed a worker.
Test 2: The Results Test
The second thing we look at is the Results Test. That is, whether the contractor is getting paid by the results that they have achieved, or whether they are paid by an hourly rate. Contractor situations tend to be results-based, whereas an hourly rate might suggest a worker relationship.
Test 3: The Risk Test
If something goes wrong, does the contractor need to rectify the issue at their own expense, or is it the principal’s responsibility to rectify the issue with the client? Again, if responsibility rests with the worker, that would imply they are a contractor, whereas if you the principal must rectify the problem or organise for the issue to be rectified, this is another indicator that they would be deemed a worker for the purpose of determining your cover.
Test 4: The Genuine Business Test
Here we look at whether the contractor generates any goodwill under the contractor’s business, or whether the goodwill is generated under the principal’s business. Does the contractor advertise their business anywhere? Who gets the credit from the work that they are doing from a business perspective, and which business enjoys the subsequent word-of-mouth promotion after the job is complete?
Test 5: The Integration Test
Finally, we look at whether the contractor is presented to the public as being part of the principal’s business or whether they are representing their own business. What’s on their polo shirt when they do the work? Do they drive vehicles with your business logo or their own business logo? Are they telling clients that they work for your business or their own business?
Those five tests are the methods we use to determine whether the contractor is running an independent business or whether they actually deemed a worker of the principal.
If all or the majority of the tests come back saying that the person is a worker of the principal, the principal has the obligation to cover those contractors under the principal’s WorkCover policy. That means they have to include the payments to contractors, less any payments in relation to the tools or materials as part of the contractor payments, as part of their rateable remuneration.
Remember, just because the contractor has their own ABN, and even if they have their own WorkCover policy, it doesn’t automatically exempt them from being the worker of the principal.
To avoid some surprise fees and penalties down the road, apply these five tests to your situation to make the right decisions.
For more information, get in touch today.
