Home Building Tips for Builders in NSW
EMPLOYEE or CONTRACTOR?

In the building and construction industry, sub-contractors are engaged by builders and principal contractors all the time.  Even though a builder may think he has engaged a person as a sub-contractor, the law may very well consider that the person is an employee of the builder, and not a sub-contractor.  In such cases, the builder may actually become liable for things that he did not contemplate when he engaged this person, such as annual leave and superannuation.

Factors suggesting the person is an EMPLOYEE

Below are a number of factors which are common to an Employer – Employee relationship, and if they exist, will suggest that the person is an employee.

Note that the existence of any of these factors will merely suggest that the person may be an employee.

• The person is paid by the hour or day (i.e a carpenter paid $30 an hour), or on a piece rate basis (i.e a bricklayer paid per brick laid)
  
  
• The person is paid other ‘employee-type’ benefits (such as a meal allowance /  travelling allowance, annual leave or superannuation)
  
  
• The person is instructed when to start and finish work (i.e 7:00am start, 3:00pm
  finish, with a 45 minute break)
  
  
• The person is required to wear a uniform with the builder’s business logo on it
  
  
• The person is at times required to do ‘unskilled’ work which is not relevant to their trade (i.e where a carpenter is required to help clean up after demolition)
  
  
• Before paying the sub-contractor, the builder deducts taxation
  
  
• The builder has the sub-contractor covered under the builder’s OWN workers compensation policy
  
  
• The person only provides labour, or provides substantially only labour (i.e the person does not also buy, supply and install materials for the builder).

Factors suggesting the person is SUB-CONTRACTOR

Below are a number of factors which are common to a Principal - Contractor relationship, and if they exist, will suggest that the person is a sub-contractor.

Note that the existence of any of these factors will merely suggest that the person may be a sub-contractor.

• The person carries on a registered business (with an ABN), as a sole trader, a partnership, or a company
  
  
• The person is registered for the GST if their business income exceeds $75,000 per year
  
  
• There is a written contractor agreement in place between the person and the builder
  
  
• Overall, the person is generally paid to complete a project (a fixed amount to achieve a fixed result), and is paid a lump sum and / or progress payments upon submitting tax invoices to the builder
  
  
• Upon receiving initial instructions from the builder, the person has total control over how the work is carried out, and how the project is completed
  
  
• The person has contributed to capital for their business (i.e has bought a ute for work purposes, with their business logo on the side of the ute)
  
  
• The person provides their own tools, equipment and materials that are needed to carry out the work and complete the project
  
  
• The person employs his own employees or engages his own sub-contractors to carry out the work and complete the project, or has the power / authority to do so
  
  
• The person has in place their own workers compensation and / or personal accident / sickness insurance policy, public liability insurance policy, and holds the required trade licence for the work they are carrying out
  
  
• The person accepts liability for any work they carry out that is defective, and has an obligation to rectify any defects at his own cost
  
  
• The person also does work for other builders, and may also advertise to the public

Summary

Generally speaking, a person who is seen by the world as:

1. as running their own business is likely to be a SUB-CONTRACTOR

2. being part of the builder’s business is likely to be an EMPLOYEE
   
   

General Guide  Once a ‘contractor’ starts to earn more than 30-40% of their income from the same builder, they will start to enter the ‘danger zone’ of being deemed that builder’s employee.