Employee vs Contractor (Workers Compensation) -Part 4
- Arnold Shields
- Feb 1, 2011
- 2 min read
Updated: Jun 16
Ensure You’re Covered, Employee vs Contractor Obligations
If you're an employer in New South Wales, whether you hire full-time, casual, or contract employees, you're legally required to hold a workers compensation insurance policy if your annual wages exceed $7,500. This requirement applies not only to direct employees but also to deemed workers—individuals who may not fit the traditional definition of an employee but are considered one under the Workers Compensation Act.
However, genuine contractors are not subject to this same requirement. Still, failing to correctly classify a worker can result in underinsurance, penalties, and exposure to claims. That's why it’s vital to understand the differences and take a conservative approach to insurance coverage.
How to Distinguish: Contractor vs Employee for Workers Compensation Purposes
There is no direct link between a worker’s classification for tax purposes and for workers compensation. A person considered a contractor by the ATO may still be a deemed worker under NSW workers compensation law.
A contractor is more likely to:
Operate an independent business
Provide their own tools, equipment, and materials
Have the ability to delegate or hire staff
Be contracted to complete a specific task or project
Be paid under a quotation or invoice
An employee is more likely to:
Be under the direction and control of the employer
Perform work personally without delegation
Be paid on a time basis (hourly, daily, weekly)
Use tools and equipment supplied by the employer
Work exclusively or primarily for one employer
Practical Steps for Employers
Even though you're not obligated to hold a workers compensation policy for contractors, it is strongly recommended to:
Confirm the contractor has appropriate workers compensation coverage
Obtain and keep a copy of their certificate of currency
Review contracts carefully to assess whether a contractor might actually be a deemed employee
Failing to insure workers properly can have serious financial and legal consequences in the event of an injury or dispute.
Disclaimer:
The information provided in this article is general in nature and does not constitute personal financial, legal or tax advice. While every effort has been made to ensure the accuracy of this content at the time of publication, tax laws and regulations may change, and individual circumstances vary. Dolman Bateman accepts no responsibility or liability for any loss or damage incurred as a result of acting on or relying upon any of the information contained herein. You should seek professional advice tailored to your specific situation before making any financial or tax decision.
