Contingent workforce risk diagnostic tool

Employees, contractors, temp workers, consultants, freelancers – with so many types of engagement, how do you know whether your worker is compliant with workforce legislation?

To assist organisations with assessing their risk profile and determining the kind of worker they have engaged, CXC has developed a contingent workforce risk diagnostic tool.

With a few easy questions, this tool will work out what kind of worker you’ve engaged, and whether you have any associated risks around co-employment, labour hire licensing, payroll tax and more.

Our risk diagnostic tool should only be used as a guide. If you have any concerns about contractor legislation, please contact us here.

Is the worker employed by your organisation?*
- Yes
- No
- I don't know
Looks like your worker may be an employee

Employees work for your business. The employer controls how they complete tasks, and pays them for the time worked, per activity or by commission. The business usually supplies all or most of the equipment they need to complete the job.

As long as your organisation manages the employee direct through HR, and has a tested payroll system, the risks are usually fairly low.

CXC assists organisations to implement the right governance framework for your contingent workforce to ensure you and your workers are not exposed to a range of workforce risks, including tax, insurance, immigration and co-employment.
Does the worker have a registered business and an ABN?*
- Yes
- No
If your contractor does not have a registered business or an ABN, you’ll need to withhold the top rate of tax from the payment and pay it directly to the Australian Taxation Office (ATO). Additionally, it’s going to be harder to have the worker deemed as a contractor.

However, having an ABN is not the definitive factor when determining whether your worker is an employee or a contractor.
Are you directing the way the worker does their work?*
- Yes
- No
Engaging contractors means your focus is purely on the outcome. How and when they deliver their work is not your responsibility. In the agreement, contractors can determine the hours required to achieve the expected results.
Do you stick to the specific deliverables outlined in the contract between your business and the contractor?*
- Yes
- No
If you give the contractor additional work outside of the agreed deliverables, they could be seen as an employee. Same goes if your contractor thinks they are unable to reject additional work issued by you.
Who supplies the equipment for the contractor to deliver their work?*
- You
- The worker
If you stipulate that the worker uses company equipment for their job, such as a laptop, mobile phone or data storage, then they could be seen as an employee.
Who takes care of tax and super?*
- You
- The worker
If you’re deducting tax from the worker’s remittance, and you’re paying their superannuation, then you might have yourself an employee. Contractors should take care of their own tax and super responsibilities.
Are you providing the worker with annual, sick or long-service leave?*
- Yes
- No
Only employees are entitled to leave, and this is usually provided for in written contract. Make sure you’re not paying your contractors for any category of leave.
Do they directly report to a person in your organisational structure and/or are they included in the headcount of your organisation?*
- Yes
- No
Looks like your worker may be a contractor or temp

Contractors or temps included in the headcount of your organisation are often paid for through operational expenditure, and can be sourced in a number of different ways. You might have sourced this worker directly through a Pty Ltd or sole trader arrangement. Recruitment agencies or labour hire firms can also engage this worker as a casual employee, and in other circumstances, the worker may be subcontracted to a payroll provider. These types of workers are normally paid hourly or by the day.

Biggest risks include:
- - Background screening (criminal, bankruptcy, APRA / ASIC banned, adverse media)
- - Insurance requirements (PI/PL and workers' compensation)
- - Data security and IT compliance adherence
- - Labour Hire Licensing
- - Payroll tax liability (if sole trader or Pty Ltd)
These risks can be mitigated if the employer uses reputable providers, has HR and procurement overseeing the process, has solid contracts, keeps up to date on legislation and audits suppliers regularly.

CXC assists organisations to implement the right governance framework for your contingent workforce to ensure you and your workers are not exposed to a range of workforce risks, including tax, insurance, immigration and co-employment.
How is the worker paid?*
- Hourly, weekly or daily rate
- Milestones or deliverables
Uh oh – looks like your worker may be employed under a sham statement of work (SOW) agreement

SOW contractors are usually used to get around staffing headcount caps or tenure policies. But if your SOW contractors are paid on an hourly or daily rate, with no link to milestones or deliverables, you’re likely opening yourself up to significant risks and inflated costs.

For SOW contractors paid on a time and materials basis, we have found the biggest risk is usually around the lack of oversight over agreed contracts. Generally, deliverables are not clearly articulated, with no direct link to payment, meaning they’re likely paid 30% higher than traditional contractors or temps. Additionally, there are usually no financial penalties to suppliers if deliverables are not met.

We recommend these workers be reclassified as contractors.

CXC assists organisations to implement the right governance framework for your contingent workforce to ensure you and your workers are not exposed to a range of workforce risks, including tax, insurance, immigration and co-employment. If you would like to find out more about how we can help please contact us here.
How is the worker sourced?*
- Directly or through a recruitment agency
- Engaged through a platform
Looks like your worker may be employed under a statement of work (SOW) agreement

The most common use of an SOW agreement is where an organisation specifies services to produce a product or result. An SOW agreement outlines the various deliverables that need to be supplied as part of a project. Unlike a traditional contractor or temp arrangement, which is normally billed on time, the SOW is typically billed at a fixed price for deliverable or milestone payments. The arrangement principally focuses on the satisfaction of the buyer as the SOW outlines and ultimately governs the definition of success against prescribed deliverables.

Regarding financials, on paper the SOW provider usually takes on the significant responsibility of the agreed outcomes and, therefore, charges a large fee to compensate for the risk. This fee could be multiples of a time and material agency arrangement for sometimes the same work.

The risk for this arrangement is generally low if procurement oversees the process, the employer has solid contracts, keeps up to date on legislation and audits suppliers regularly.

Generally, organisations have minimal visibility of SOW arrangements and the contracts they are engaged on, leading to the majority of the risks. If you engage SOW providers, consider the following questions:
- What protections do we have in our contract with the SOW provider?
- Is the contract our contract or their contract, or is there even a contract in place?
- Who is tracking the deliverables, milestones and outcomes?
- Have we agreed to deliverable-based payments or is this actually time and material (hourly or daily) payment work?
- How is our organisation onboarding these workers, do they have the right to work in Australia, are they employed by the SOW provider or independent contractors?
CXC assists organisations to implement the right governance framework for your contingent workforce to ensure you and your workers are not exposed to a range of workforce risks, including tax, insurance, immigration and co-employment. If you would like to find out more about how we can help please contact us here.
Looks like your worker may be a freelancer

Freelancers are commonly engaged through a platform for a deliverable. They can be paid by deliverables or on an hourly or daily rate. They are usually a sole trader, but can sometimes be based overseas.

Depending whether the freelancer is onshore or offshore, the biggest risks include:

Onshore:
- Background screening (criminal, bankruptcy, APRA/ ASIC banned, adverse media)
- Insurance requirements (PI/PL and workers’ compensation)
- Payroll tax liability
Offshore:
- Tax
CXC assists organisations to implement the right governance framework for your contingent workforce to ensure you and your workers are not exposed to a range of workforce risks, including tax, insurance, immigration and co-employment. If you would like to find out more about how we can help please contact us here.
Fill out the form below to receive a detailed report, outlining the associated risks and mitigation strategies for each category of worker.
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Contingent workforce risk diagnostic tool

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