What to know before hiring NDIS contractors & subcontractors

If you are engaging a support worker as an independent contractor, this article was written with you in mind. Equally, NDIS contractors with extra disability support work who are on the hunt for another set of NDIS-approved hands, this has also been written with you in mind.

Instead of turning clients away, engaging NDIS contractors or NDIS subcontractors, someone who checks all the boxes to be a disability support worker, can be a good way to manage the overflow of work, either temporarily or long term.

Engaging NDIS Contractors or Subcontractors?

View our service agreement templates available to give to:

Or, as highlighted in this article, might they instead be employees?

View our template contracts to give to:

However, you must exercise caution when engaging contractors and subcontractors to avoid issues with the Australian Tax Office (ATO) and the Fair Work Commission (FWC), previously known as Fair Work Australia. This article will help you avoid the most common mistakes and misconceptions that can greatly disrupt business and cost your business dearly. Importantly, it’s specific to NDIS support work.

It is well known that sometimes, people will engage contractors and subcontractors because they believe this way of engaging help without the costs and complications that employees bring such as superannuation, workers compensation, leave entitlements and payroll. However as we’ll explore below, quite a lot has changed in this space that you’ll want to know about, and act accordingly.

Misclassifying: When are your NDIS contractors not legally contractors?

If you are engaging an NDIS support worker as an independent contractor, it is not enough to simply hire them and say, “you are a contractor”. There are some specific tests that anyone engaging a contractor (or subcontractor) needs to know to work out whether the working relationship is truly a contractor relationship, or whether they should be hired as an employee.

Why? Because the ATO are very strict on what they call ‘sham contracting’. Historically, it has been a big problem in Australia and the ATO is now cracking down on it. Below are the 7 main tests to ensure you’re okay to hire a contractor (or subcontractor) or if you really must hire them as an employee.

Sham Contracting Tests

Considerations

1. The Control Test


If your contractor or subcontractor can control how and when the work will be done (with reasonable but not over the top direction from you), then they are more likely to be classified as a contractor (or subcontractor).

If you have control of every aspect of the worker contractor or subcontractor does, such as when to work, how to work and the order to do tasks in, it is likely you have an employee.

2. The ‘In Your Business’ or ‘For Your Business’ Test

If the support worker you bring in works for their own NDIS business and provides services to your business as well, then they are likely to be a contractor. They may elect to present themselves as part of your team.

If the person you bring into your business is contractually required to represent your business, then it is likely you have an employee.

3. The Payment Test

If you pay your support worker for a specific result, upon completion, for a fixed fee, then they are likely to be classified as a contractor (or subcontractor).

If you pay them for the time worked, or by task or activity, or pay a commission, then it is likely you have an employee.

4. The Delegation & Delivery Test

If you allow your support worker to delegate work to people working with them (other than you or your employees), then that is an indicator that they are a contractor.*

If you do not allow them to delegate the work to anyone else (to people other than you), then they are likely to be considered an employee.

* If you wish to ensure that the contractor requires subcontractor approval, that must be detailed in the contractor agreement. If the business offers the replacement, then they are an employee rather than a contractor.

5. The Tools & Equipment Test

If the support workers you engage provide their own tools or equipment to do the job, such as a laptop, exercise equipment or a car to transport clients, then that is an indicator they are a contractor.

If you provide items such as computers, uniforms, cars and exercise equipment for example, that is an indicator they are likely to be considered an employee.

6. The Risk Ownership Test

If the support worker you engage has an accident while driving a client or there is some failure in delivering the services promised, and they are responsible for remedying the issue and have their own insurance, then they are likely to be classified as a contractor.

If you are responsible for fixing or liaising in relation to the accident or failure, and pay insurance to cover issues like these, then they are likely to be considered an employee.

7. The Goodwill & Faith Test

If the support worker you engage is working and generating goodwill for themselves as an individual or business, then they will be likely classified as a contractor.

If they are generating goodwill for you/your business, then they are likely to be considered an employee.

Source: Difference between employees and contractors

While no one test will determine whether the support worker you engage is a contractor or an employee, it is instead about looking at all of these tests together to form a picture of the potential hire and see if they fit into the contractor category.

The penalties and charges for getting it wrong

If there is any grey area or the lines are blurred, it is best to exercise caution and engage your support worker as an employee. That being said, a casual employee might be the better way to go if you are unsure if you will have ongoing work for them.

The ATO sees the incorrect classification of contractors as illegal.

The penalties and charges for misclassification include:

  • PAYG tax withholding penalty (for not deducting tax from employee wages and sending it to the ATO)

  • A Superannuation Guarantee charge to cover what should have been paid, plus interest and an administration fee

  • An additional Superannuation Guarantee charge of up to 200%

At the date of publishing this article, a Court can impose penalties of up to $16,500 for individuals and $82,500 for corporations, per breach. 

Is superannuation ever payable to contractors?

Avoiding having to pay employee entitlements and superannuation was once known to be a key benefit of engaging contractors and actually avoiding payroll and super and insurance is why so many people are intent on hiring contractors. 

But, the belief that you do not have to pay superannuation to contractors is a myth in some cases, especially where contractors are paid mainly for their labour, as they are in the NDIS sector.

Since the 1st of July 2022, if contractors are paid mainly for their labour they are considered ‘employees for superannuation guarantee purposes’, regardless of whether they have an ABN or not. Prior to this date there was a threshold amount, but this was abolished on 1 July 2022 and superannuation can apply for any amount paid.

You are required to make super contributions for your contractors if:

  • of the money they are paid, more than half (dollar value) is for their labour;

  • they cannot delegate the work to someone else; or

  • they are paid for their labour and skills (rather than a specific result).

As detailed above, if the lines are blurry, you are safer to engage them as an employee to avoid the charges and penalties that accompany getting it wrong. Or at the very lease seek legal advice to make sure you are doing the right thing.

Other NDIS support worker contract essentials

Regardless of whether you engage your next hire as an employee, contractor or subcontractor, there are other important elements that must be included in the agreement. One very important inclusion, due to the unique nature of disability support work and the close bond many support workers form with their NDIS participant clients, is to ensure that the contract includes a non-solicitation clause. That is, a restraint that states if they are no longer engaged by you, they will not be able to work directly with the client for a set period of time. This time period gives you the chance to engage another contractor or employee and keep the client, before that restraint period runs out. 

We have seen employees and contractors poach clients without recourse because there was no non-solicitation clause in their contract. Given the nature of this work, and the bond that is often developed between support workers and their clients, this is a genuine risk that you must consider. 

We trust you have found this information helpful and now have clarity about your obligations when bringing in NDIS support workers. Whether you ultimately need NDIS contractors, subcontractors, employees or a mix, you will benefit from an agreement that adequately protects them, your clients, you and your business.

Related articles: NDIS business owners: What to know to legally & correctly hire a support worker

NDIS support worker service agreement essentials

We have created affordable support worker agreement templates for contractors and subcontractors as well as employees.

Find our NDIS Subcontractor Agreement  / Contractor Agreement Template here.

If hiring employees:

For casuals, take a look at our Casual Support Worker Employment Contract here.

For full time or part time employees, you can learn more about our NDIS Support Worker Employment Contract, here.