Understanding Worker Classification in NSW

A Comprehensive Guide to Determining Worker Status for Workers Compensation

In New South Wales (NSW), determining whether a contractor is classified as a worker or a deemed worker for the purposes of the worker's compensation scheme involves analysing several factors and legal definitions. Here’s a detailed guide on how to make this determination:

Legal Framework

1. Workers Compensation Act 1987 (NSW)

2. Workplace Injury Management and Workers Compensation Act 1998 (NSW)

Definition of a Worker

According to Section 4 of the Workers Compensation Act 1987 (NSW), a "worker" is defined as:

• Any person who has entered into or works under a contract of service or apprenticeship with an employer.

• A person who is engaged under a Contract of Service: This generally refers to traditional employer-employee relationships.

Determining if a Contractor is a Worker

To determine if a contractor is a worker, courts and tribunals apply several tests, including:

1. Control Test:

• Examines the degree of control the employer has over how the work is performed.

• Greater control by the employer suggests an employment relationship.

2. Integration Test:

• Considers whether the work performed by the contractor is integrated into the employer’s business or is only an accessory to it.

• If the contractor’s work is integral to the business, they may be considered a worker.

3. Results Test:

• Focuses on whether the contractor is being paid for a result (a specific outcome or piece of work) rather than for their time and effort.

• Being paid for results suggests an independent contractor status.

4. Entrepreneur Test:

• Considers whether the contractor runs a business of their own or is working in the business of the principal.

• Contractors who have their own business setup, such as having their own tools, setting their own hours, or working for multiple clients, are likely to be independent contractors.

Deemed Worker

Section 5 of the Workers Compensation Act 1987 (NSW) and Clause 2 of Schedule 1 of the Act expand the definition of a worker to include certain contractors as deemed workers. Key factors include:

1. Contracts for Labour Only or Mainly for Labour:

• Contractors who perform work under a contract that is mainly for their labour may be deemed workers.

• If a contractor provides more than 50 of the labour in the contract, they may be considered workers.

2. Substitution and Delegation:

• If a contractor cannot delegate the work to someone else and must perform the work personally, they are more likely to be a deemed worker.

3. Provision of Tools and Equipment:

• If the employer provides tools and equipment, it indicates an employment relationship.

• If the contractor provides significant tools and equipment, they may be considered an independent contractor.

4. Tax and Superannuation Arrangements:

• How the contractor is treated for tax purposes (e.g., whether they have PAYG withholding) and superannuation can indicate their status.

• Employees usually have PAYG tax deducted and receive superannuation contributions from the employer.

Case Law

Various cases provide judicial interpretations of these tests and help in understanding how these principles are applied:

• Stevens v Brodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16: High Court of Australia case providing key guidance on distinguishing between employees and independent contractors.

• Hollis v Vabu Pty Ltd (2001) 207 CLR 21: High Court found a bicycle courier to be an employee rather than an independent contractor due to the high level of control by the employer.

Practical Steps

1. Review the Contract: Analyse the terms of the contract between the principal and the contractor.

2. Apply the Tests: Assess the relationship using the control, integration, results, and entrepreneur tests.

3. Consider Deemed Worker Provisions: Check if the contractor fits within the deemed worker categories per the legislation.

4. Seek Legal Advice: If uncertain, seek legal advice or refer to case law for similar circumstances.

Determining whether a contractor is classified as a worker or a deemed worker for the purposes of the NSW worker's compensation scheme involves a detailed analysis of the nature of the working relationship. Applying the control, integration, results, and entrepreneur tests, along with considering the legislative provisions for deemed workers, helps make this determination. Legal precedents also provide useful guidance for specific cases.