You have to be very careful when you are thinking about employing a tradesmen to help build your home. If you take on the role as owner builder then you take all the responsibility and risks of a licensed builder. You will be able to do work yourself to save money but if you have to get someone with skills to help you then the first question you have to ask yourself is the worker an employee or a contractor. Understanding the difference means either paying or not paying workers compensation and superannuation.
A good place to start is to visit the ATO website and do the on-line test to see if the worker meets the criteria as a contractor. Having an ABN is simply not enough!
For me I try to make it simple. There is no clear definition between an employee and a contractor unless I can prove to the ATO that the person I have engaged has a written agreement or contract.
The agreement must accurately state the true nature of the relationship.
To summarise this further I look at these criteria:
May be a Contractor if:
- The worker can make a profit or loss on the project
- The worker provides an invoice for the works
- Rectifying any defective work is the responsibility of the worker without further payment
- The worker does not require direction from you
- The worker provides their own tools
- The worker incurs expenses such as maintenance of equipment
- The worker is carrying out work under a business name
May be an Employee if
- Is paid a wage or salary
- Works specific hours set by the owner
- Has not supplied equipment
- Is directed how to carry out the works
All contracting needs to comply with the state specific laws and regulations which are referred to as the Domestic Building Acts. These are as follows
NSW Home Building Act 1989
ACT Building Act 2004
QLD Domestic Building Contracts Act 2000
SA Building Work Contractors Act 1995
VIC Domestic building Contracts Act 1995
WA Home building Contracts Act 1991
NT Building Act 1993
TAS Housing Indemnity Act 1992
Before an owner builder starts employing tradesmen to carry out any works on their project it is very important to have the agreement documented to ensure there are no misunderstandings. Getting this wrong can and usually will be very costly.
We recommend the use of “basic building contracts” which are available from each of the state and territory Government consumer protection agencies. These provide the most comprehensive and easily understood contracts.