To determine if a worker is an employee or independent contractor based on the legal rights and obligations (that is, the terms) in the contract you entered into with your worker, consider their integration within your business.
Workers who don't bear the risk
This is a characteristic of an employee.
The worker does not bear the legal risk if your business:
- is responsible for defects in the work done by the worker
- has to rectify any defect or pay to have the defect rectified.
If your worker rectifies a defect in their work, but your business pays the worker for the time taken and any materials required to rectify this defect, the worker is not considered to have borne the risk.
Example: business is liable for damages
A commercial cleaning business has a contract to clean a number of small offices. The business hires several cleaners who do the cleaning work.
One of the cleaners, Brayden, accidently spills bleach on the foyer carpet in one of the buildings. He attempts to minimise the damage, but the carpet is ruined.
Under the contract between the commercial cleaning business and the small office, the business is liable for the damage and has to pay for the carpet to be replaced. Pursuant to the contract between Brayden and the commercial cleaning business, Brayden is not required to rectify or pay for the rectification of any damage he causes in carrying out his work. While Brayden receives a reprimand from the business, he is not contractually required to pay for the damage he caused.
Brayden does not bear the risk as he is not responsible for his work and the business has to pay to have the defect in the work rectified.
End of exampleWorkers who do bear the risk
This is a characteristic of an independent contractor.
The worker bears the legal risk if:
- the worker is legally responsible for defects in their work
- the worker has to rectify any defect (including incurring the cost of any materials required) or pay to have the defect rectified
- your business does not have to pay the worker for the time taken or any materials required to rectify any defect.
Example: independent contractor is liable for damages
Robert is a pest control technician. He contracts his services to an architect business to carry out an annual pest spray of its premises. Robert completes the pest spray, treating cockroaches, spiders, fleas, ants and silverfish, and guarantees the pests will not return for 12 months.
Two months after the pest spray was completed, some of the business's employees complain about finding cockroaches in the staff lunchroom.
As Robert guaranteed the work, the business contacts Robert and asks him to fix the problem. The business is not required to pay Robert to come back and respray the area to eradicate the cockroaches.
Robert bears risks as he is legally responsible for rectifying his work and that rectification is at his own expense.
End of example