5. Employment on one's own account

5.1 Self-employed (and 'own account') workers
5.2 Independent contractors: appearance and reality
5.3 Taxation reform and survey evidence

5.1 Self-employed (and 'own account') workers

As with casual work, self-employment is not easy to define precisely, and both legal statuses and statistical categories may depart from definitions corresponding to common understanding and appropriate to economic analysis. A further difficulty in attempting to examine trends over time is that forms of contract may be manipulated to obscure the worker's actual status for such purposes as tax minimisation or on-costs of labour to an employer.

The American Heritage dictionary defines 'self-employed' as 'earning one's livelihood directly from one's own trade or business rather than as an employee of another.' The Oxford English dictionary defines 'on one's own account'—as in 'business on…'—as 'for one's own interest, and at one's own risk,' which catches something important, because we are concerned primarily with the worker who, as expressed by Creighton, 'goes out into the marketplace and contracts to perform a specified task for a principal on the basis of a fee for service…bears the risk of the undertaking, and stands to take the benefit of any surplus or profit which may be generated' (Creighton 1994). However, 'fee for service' is too narrow. Adam Smith (1776 Bk I, Ch VIII) defined the 'independent workman, [who] gets profits as well as wages' in terms of his ownership of value added: 'It sometimes happens…that a single independent workman has stock sufficient both to purchase the materials of his work and to maintain himself till it be completed. He is both master and workman, and enjoys the whole produce of his own labour, or the whole value which it adds to the materials upon which it is bestowed.'

Smith's definition remains an excellent description of some forms of self-employment, but we need one general enough to include, say, a craftsman, farmer, fisherman, haulage contractor, plant operator, plumber, electrician, landscape gardener, tailor, shopkeeper, hairdresser, musician, author, data analyst, doctor, lawyer and prostitute, but specific enough to distinguish some members of each of those occupations from others.²³ A reasonable approximation might be as described in the following paragraphs, with a summary in Table 3, page 59.

The self-employed worker is an entrepreneur who engages in a series of transactions in which he buys or hires whatever land, premises, equipment and materials may be necessary to the production of whatever goods or services he sells,²⁴ may increase his net income by more efficient use of inputs and the price, quality and reputation of what he sells but also, if dependent on that employment for a livelihood and perhaps while fully employed, may go broke. The worker is also a manager, although some management services may be bought, and he may be assisted by family members with or without pay. Nor is self-employed status necessarily lost by use of other paid help as long as the proprietor remains directly involved in and in detailed control of production.

Using subscripting for brevity, let us call that 'self-employed1'.

Creighton says of 'work arrangements falling outside of the traditional legal conception of employer/employee relationship', that:

The most obvious example[s] are those which involve persons who work under contracts for services rather than contracts of service—that is, those who are independent contractors rather than employees… Traditionally the distinction hinged upon whether the 'master'…could be said to 'control' the 'what, the how and the when' of the 'servant's'…job. [This] has proved singularly ill-suited to the…requirements of post-industrial society. Yet the courts…have shown a dogged persistence in trying to adapt this pre-industrial concept of control to [present] circumstances…The State and federal parliaments are similarly afflicted (Creighton, 1994, pp 57-59).²⁵

Let us call the various legal definitions collectively 'self-employed2'.

Although not concerned with legal complications, Covick (1984) also had referred to 'the problem that while in principle the self-employed sell the output produced from their labour rather than their labour itself, it is often in practice very difficult to make the distinction…The border between self-employment and wage (or salary) earning employment is a blurred one rather than a precise boundary.'

In the United States, the Bureau of Labor Statistics survey of alternative employment arrangements, 'independent contractors' were:

Workers identified as wage or salary workers in the basic CPS [Current Population Survey] who answered affirmatively to the question, 'Last week, were you working as an independent contractor, an independent consultant, or a freelance worker? That is, someone who obtains customers on [his] own to provide a product or service.' Also, workers identified as self-employed in the basic CPS who answered affirmatively to the question, 'Are you self-employed as an independent contractor, independent consultant, or something else (such as a shop or restaurant owner)?' in order to distinguish…independent contractors…from those who were business operators…

[I]ndependent contractors may have one client or many, may have employees or work alone, and may or may not have businesses that are incorporated… Of all the self-employed, about one-half were reported to be independent contractors [and] some 85 per cent of independent contractors were classified as self-employed in the basic questionnaire… (United States Department of Labor 1996, Cohany, p. 32)

That seems to distinguish the main varieties of self-employed1, suggesting it ought to be subdivided into self-employed1A for independent contractors and self-employed1B for (other) own-business operators. Those distinctions have not been made in Australian collections. In an article on 'trends in self-employment' published in 1997 the ABS explained that:

A self-employed person can be an own account worker or an employer and is defined as a person who operates his…own economic enterprise or engages independently in a profession or trade and the business is not incorporated, either with or without employees. This definition excludes owner-managers of incorporated enterprises, who are defined as employees. (ABS 6203.0, January 1997)

That suggests that own-account workers were a subcategory of self-employed person. However, as of 2001 the definition of 'own-account worker' was (ABS online), 'A person who operates his or her own unincorporated enterprise or engages independently in a profession or trade, and hires no employees (this category was formerly entitled self-employed). (Emphasis added.)

Some of the misleading consequences of the exclusions were mentioned above. People working in their own businesses, being limited liability companies, with or without employees, were themselves 'employees'; 'employers' were people who worked in their own businesses, not being limited liability companies, with employees, and 'did not pay themselves a wage or salary'.

Those peculiarities were at least partly because of particular requirements for compilation of national accounts. Call the ABS category 'self-employed3'. Its inconsistencies with self-employed1 meant that many respondents, even those who knew, for example, that incorporated enterprises are persons at law, would give 'incorrect' answers, as might a tradesman who sometimes employed an assistant on a casual basis, or took on an apprentice, or set up a partnership with his wife to split income for taxation purposes.²⁶

The discrepancies between self-employed1 and self-employed3 could cause the ratio between the two to change over time with, say, changes in types of business or in taxation or regulatory régimes, which would affect the significance of statistical time series. Subject to that proviso, reputed changes in the labour market would lead us to expect increased self- employment in relation to wage and salary employment. Figure 28 shows figures for males and females from 1986 to 2000, after exclusion of employment in agriculture, forestry and fishing, where self-employment could have been decreasing for quite different reasons. Male and female figures moved together at different levels, although the calculated male trend rose gradually until stabilising in the later 1990s and the female trend line was nearly flat.

The ABS article mentioned above presented quarterly trend figures of the ratio between 'self- employed and all employed' from 1978 to 1996, and concluded that 'Changes over time in the number of self-employed persons have followed a similar trend to all employed persons… . Both series show cyclical behaviour… [T]he male self-employment rate increased slightly… ' Changes between 1986 and 1996 were looked at in some detail. In both years the heaviest concentrations were in agriculture, construction, retailing, and property and business services, and notable increase had occurred in the proportion of self-employed workers with post- school qualifications.

Figure 29 indicates that one factor in change may have been part-time self-employment. The series is not exactly comparable with the one shown in Figure 28 because agriculture, forestry and fishing cannot be excluded in the published data. However, the male trend was for a gradual but distinct fall in full-time as opposed to part-time self-employment with, yet again, stabilisation in the later years. The female proportion changed very little.

It cannot be concluded that nothing much was happening in the labour market in respect of the various forms of self-employment. Perhaps the available instruments of measurement failed to detect or quantify changes. The statistical categories are opaque, several categories of interest are not distinguished clearly or at all, respondent error may be relatively high; and the statistics may be somewhat worse than uninformative. In the period between 1988 and 1993, growing discrepancies appeared between the ABS labour force series, reported in 6203.0, and the ABS quarterly survey of employment and earnings (SES), reported in ABS 6248.0, where information on wage and salary earners is supplied by a sample of employers. As explained by the Bureau in that publication for September 1994:

The monthly Labour Force Survey collects data by interview from a sample of about 29 000 …dwellings… Self-employed persons are included in the Labour Force Survey… There are conceptual and methodological reasons for differences in the estimates produced by the two surveys…

Since the introduction of the SEE series in… 1983, the estimates of the number of wage and salary earners have been lower than those from the LFS. The difference between the two series started to widen during 1989 and has grown to its present level of approximately 610 000.

When making comparisons of…the two surveys it must be borne in mind that SEE draws its sample from the ABS register of businesses [which] on occasions…can be subject to undercoverage of business units and…affected by delays… This…cannot [affect] a household based collection, such as LFS.²⁷

Figure 28: Ratio of self-employed (own account) workers to employees, excluding agriculture, forestry and fishing, 1986-2000

Source: ABS 6203.0

All figures are for August

Figure 29: Self (own account) employment, all industries, proportion full-time 1986-2000

Source: ABS 6203.0

All figures are for August

5.2 Independent contractors: appearance and reality

If, as that suggests, the LFS be taken as reliable, the SEE failed to account for more than 9 per cent of wage and salary earners. Other explanations, not necessarily mutually exclusive, are possible. In one of a series of reports, VandenHeuvel and Wooden suggested that a contributory factor was overcounting of wage and salary earners because of

…an increase in the number of former employees now being employed on a contract basis without experiencing any fundamental change in either the type of work of the principal- agent relationship between employer and worker. A problem with using the self- employment data from the Labour Force Survey as an indicator of trends in contract employment is [that] some individuals [will] consider themselves to be…wage and salary earners when in fact they are not on the company payroll (VandenHeuvel & Wooden 1994).

They referred to these 'employees in all but name' as 'dependent contractors', as opposed to contractors who regularly provided services to more than one organisation. Using new data, the same authors (VandenHeuvel & Wooden 1995) estimated that 38 per cent of non-farm self-employed contractors were 'dependent'.

One obvious motive for an employer to reclassify employees would be minimisation of oncosts of employment, and one incentive for employees to accept would be receipt of total earnings instead of earnings after pay-as-you-earn (PAYE) taxation. The ATO having long been concerned by possible avoidance of responsibilities normally incumbent on parties to an employer-employee relationship, the then Treasurer, introducing the 1995-96 Budget, foreshadowed legislation to prevent loss of revenue from:

Certain labour market practices [which] have entailed the replacement of traditional…employer/employee arrangements with labour or result-based contracts… Some of the new arrangements are purportedly outside the scope of the pay-as-you-earn provisions of the income tax law [which] will be amended [to] cover payments for the labour of a contractor which were always intended to be covered. Consequential amendments will also be made [to] related laws; for example, in determining which payments for labour are within the scope of the Superannuation Guarantee legislation.

In other cases, individuals form an entity, such as a company [which] may be used with the intention that…personal services income, which would otherwise be assessed to an individual, is received by an entity and then alienated. For example, the income is split with family members to reduce overall tax liability…

The Government's objective is to ensure that the appropriate tax is payable by individual taxpayers on income which is clearly derived from the personal services provided by the individual (Department of the Treasury 1995-96).

That particular proposal lapsed with change of government in 1996. Meanwhile, the attempts of the ATO to enforce current provisions illustrated the difficulty of any clear distinction, unless arbitrary, between independent contractors and employees, and suggested that contracts of employment had indeed become more varied. New forms of contract may have developed.

The ATO was aware of the complexities. In 1985, it had issued a ruling 'to set down guidelines to assist in the identification of the payments, described as "salary or wages" to which the PAYE system applies' (ATO, 1985). The ruling contained 23 numbered criteria on which a 'master and servant relationship' might be distinguished from an 'independent contractor relationship'. For example, whereas 'an employee…will usually be engaged to work on a continuing basis and at the direction of the employer' the agreement with a contractor 'will require the performance of a specified task/s'; whereas 'plant and equipment is normally provided by the employer' of a wage or salary worker, such provision 'is usually the responsibility of the contractor'; and whereas payment of an employee 'is often…for the time actually worked' and 'normally made on a regular basis', 'the contract [with an independent contractor] will provide for the specified work to be performed for an agreed sum or other sum ascertainable by reference to the contract [although] the contract may also provide for payment of the agreed sum by instalments or progress payments…' The words 'usually', 'normally' and 'often' acknowledged the absence of simple and conclusive tests, although 'The presence of a right to control how, where, when and who is to carry out the work in question points very strongly (and usually conclusively) to employee status.'

If application of specific criteria were inconclusive the relationship might be deemed on its overall character to be that of employer and employee:

The more an individual's activities are integrated with that of the principal the greater the prima facie inference that the individual, while perhaps not an employee as such is, in the work performed, virtually in the same position as an employee as such. Payments for work performed by such individuals would constitute 'salary or wages' for the purposes of [taxation].

The 1985 ruling was largely an attempt to codify precedent common law. From time to time determinations were appealed against and became subject to external review, and the question of whether or not a person was an independent contractor was also at issue in cases litigated for other reasons. The series need not be considered in detail, but five cases decided in as many jurisdictions will give some idea of the issues and how they were dealt with.

Forms of contract had fiscal implications for State as well as federal governments. A decision of the Administrative Appeals Tribunal of Victoria in 1996—although the events under review went back to 1987—concerned liability to payroll tax in respect of people employed part-time as interviewers by a firm conducting surveys of public opinion (AAT(V) 1996). The particular interviewers seem in fact to have been on-call workers, 'currently…expected to work about two weekends a month,' 'not subject to any written contract or retainer,' and paid at rates 'having regard to [the firm's] assessment of the time that may reasonably be required to complete the given number of questionnaires.' Income tax was not deducted and no entitlement was provided for holiday pay or long service leave.

The company argued that 'the interviewers were not employees, but rather independent contractors…engaged for each assignment,' which they could accept or decline. They were 'paid on a piecework basis', subject to control only so far as to ensure validity of data, did not work set hours, were free to engage in other work, and so on. In finding against it the tribunal saw no need to go far beyond the issue of control: 'The essence of the case…is that the company tells its interviewers precisely what to do and how to do it, and then employs people to check that they have done so.' The 'voluntary and irregular nature of the work…must be the case with many casual employees.'

In another 1996 decision the relevant legislation was the Industrial Relations Act 1988. A young man described by the court as 'relatively unsophisticated generally, and particularly in relation to dealings with…employers', had words with his boss and was sacked on the spot. In the upshot, entitlement to compensation for dismissal without payment in lieu of notice was contested on the ground that 'the applicant was an independent contractor and…not an employee'—a term defined unhelpfully by the legislation as 'any person whose actual occupation is that of an employee.' Although he had subscribed to a form of agreement defining his status as that of a subcontractor with no entitlement except a specified payment for each day worked, and explicitly responsible for 'outgoings such as income tax…accident and other insurance…superannuation' and so on, 'The applicant argues that in spite of that agreement he was an employee, if you like, in heavy disguise.' It appeared that he had been 'committed to working for the respondent, or to making himself available…every day of the week', had been paid weekly for days worked, and that 'the respondent exercised almost complete control over the applicant in the performance of the work.' Finally, when it was put to the respondent 'that the purpose of the contract was to avoid his obligations as an employer…he agreed with that proposition [and] following on from that…to avoid all that flows from that relationship' (IRC 1996a).

A third case requiring application of common law, decided by the New South Wales Court of Appeal in 1996, concerned the liability of a firm under the Superannuation Guarantee (Administration) Act 1992 to make contributions towards the superannuation of persons employed as courier riders and drivers. The degree of control exercised by the appellant company had been emphasised. However, the court upheld the appeal on the grounds that the couriers supplied their own vehicles and equipment, were paid so much a delivery, had been taxed as independent contractors, were free to use their own business names and therefore, 'although…the case is hardly without difficulty…at common law…must be classified as independent contractors', and that, while the legislation referred to 'a contract that is wholly or principally for the labour of the person', 'In view of the fact that each courier provides his own capital and faces the loss of that capital if the venture does not work out…the courier is working for himself,' and therefore outside the scope of the statutory provision (NSW SC 1996).

Judgment in that case, Vabu, referred to a 1986 decision of the High Court of Australia, in which a man engaged in a logging operation as a truck driver had been injured in 1977 as a result of the admitted negligence of a man driving a bulldozer. It had been claimed that the firm conducting the logging was legally responsible for the bulldozer driver's negligent act, either because he was their employee or, if he was not, because, being in charge of the workplace, they had failed in a duty of care to provide safe working conditions. The first question to be decided was whether the bulldozer driver had been an employee or an independent contractor, which involved giving some attention also to the status of the truck driver, who had been employed on similar terms. The court noted that:

A prominent factor in determining the nature of the relationship between a person who engages another to perform work and the person so engaged is the degree of control which the former can exercise over the latter. [That, however], whilst significant, is not the sole criterion by which to gauge whether a relationship is one of employment. The approach of this Court has been to regard it merely as one of a number of indicia which must be considered in the determination of that question…Other relevant matters include, but are not limited to, the mode of remuneration, the provision and maintenance of equipment, the obligation to work, the hours of work and provision for holidays, the deduction of income tax and the delegation of work by the putative employee (Aust HC 1986).

The two men had 'provided and maintained their own equipment, set their own hours of work and received fortnightly payment…determined by the volume of timber they had been involved in delivering'. No tax had been deducted, and 'Stevens's profit and loss account for the years [1976-77 and 1977-78] showed the ratio of his expenses to his gross income to be approximately 71 per cent.' Work was not guaranteed and they could seek other work if temporarily not required. Operations were supervised by a bush boss, but there appeared to be no intention that he should have authority 'to direct [the men] in the management and control of their equipment.' Furthermore, the bulldozer driver had delegated responsibility for driving his truck to his son.

Those facts, taken together, might be inconclusive only if weight were given to the so-called 'organisation test'—very similar to the 1985 Tax ruling's 'integration test', and probably its inspiration. It had been treated in various ways by the courts but, as applied to the present case, could involve consideration of the extent to which the men had been merely contributing to the timber company's business rather than conducting their own. The court thought that the 'control' test was 'the more cogent in determining the nature of the relationship'. It found that both men had been working as independent contractors, and that the company had not failed to take reasonable action to ensure safety.

In the fifth and last case, decided by the Federal Court in 1997, the eight applicants for review were involved in operating taxi services as regulated by legislation in four States, and were disputing the ruling of the Commissioner of Taxation that they were to deduct tax from their drivers' earnings and to pay superannuation guarantee charges. The Commissioner argued that the drivers were employees either in common law, being paid under contracts wholly or principally for their labour, or under 'the extended statutory definition' as being 'an integral part of the plaintiffs' businesses.' All parties had agreed to seek no order as to costs.

Contracts varied in detail, but in each case the vehicles were owned and maintained by the taxi company, issued to drivers at the beginning of a shift and returned at the end with payment either as a percentage of fares received or a fixed sum. The court concluded that:

…the agreement between the operators and drivers in each of the present cases was one of bailment²⁸ and not of employment. Although no single factor is determinative…

First, the driver pays the owner, and not the other way around…While the fixed payment method more clearly is marked as a bailment than the gross percentage of meter method, I do not think that ultimately a distinction should be drawn between them…

Second, when there is an agreement in writing, or implied by legislation…that agreement is one of bailment [and] where it is not suggested that the label is a sham, it should be given effect to.

Third, although some control is exercised by the operators over the drivers [it] is only such as to ensure compliance with legislation concerning taxis [and] control exercised as well by network operators…is only such as is necessary for the running of the network…Drivers are free to obtain work as they wish…often utilising mobile phones [and] will pick passengers up from the streets, or from ranks. There is no compulsion…to use the network, although clearly it will be in the interests of drivers to do so.

Drivers provide their own change and directories, pay for the petrol consumed and [for] keeping the cars clean…In some places drivers pay additional insurance premiums; in all States, subject to insurance, drivers are required to pay for damage to vehicles which the driver causes…In the event of a breakdown, the drivers are entitled to some reimbursement of amounts which they pay for the hire…

It is only in NSW that legislation requires payment of long service leave, sick pay and workers' compensation premiums [but in] many…determinations…it has been accepted that the relationship is one of bailment…In all States stamp duty is exigible on the basis that there is a bailment relationship…

I would, accordingly, conclude that the relationships…between all applicant operators and their drivers are…of bailment [and that] each of the drivers with which the present applications are concerned carries on his or her own business rather than being a person engaged as an employee in the business of the applicants.

Which left the question of whether payments were 'wholly or principally for the labour' of the drivers. Firstly, in fact the drivers paid the operators. Apart from that, 'the drivers make payment to the operators for the right to bail the cabs and ply them in their own business. They are neither employees in the ordinary sense, nor do they receive payments under contracts for their labour' (Aust FC 1997).

These five cases had the common characteristic of a more-or-less continuing relationship between the contractors, or many of them, and the principals, which is not why they were selected but has much to do with why they were subject to dispute. To return to problems of classification, if we imagine a group of people discussing the terms of employment in their several jobs, they would seldom have difficulty in defining themselves as self-employed or wage and salary workers, although what they communicated to each other would not correspond with ABS definitions. The status of some who identified themselves as self- employed might be questioned, and particularly when they worked under contract of some duration for one principal. In clarifying their situation they would probably refer to much the same indicia as the courts: that they were organised as a business, had invested and were risking capital, were not simply paid for hours spent in a pre-existing job but had considerable autonomy, and so on. The High Court remarked in Stevens v Brodribb that 'Brodribb and the men, including Stevens and Gray, regarded their relationship as one of independent contract, not one of employment.' Our hypothetical group would concede that self-employment did not necessarily involve contracting with several principals in any short period.

All self-employed1A are independent contractors, and the subcategory comprising those relatively closely integrated with a principal's business—call it 'self-employed1Aα'—has no satisfactory name. 'Dependent contractor' is pejorative and refers to something rather different. Self-employed1Aα is a recognisable but not clearly-defined category, and identification of a person as belonging to it could sometimes depend on context; that is, on comparison with other people of the same occupation or in the same workplace. Call the equivalent category as distinguished by the common law 'self-employed2α'. Stepwise development of common law can lead into vacuity, incoherence, absurdity and inequity, sometimes requiring legislative correction,²⁹ but self-employed 2α would seem to correspond closely to self-employed1Aα. Similar or overlapping entities defined by legislation or deemed to exist under authority conferred by statute—the 1985 ruling's proposal to treat a person, although 'perhaps not an employee as such', as an employee—might be called collectively 'self-employedX'. Finally, sham arrangements intended to misrepresent an employee as self-employed1A—Clarke v Custom Security Services—might be called 'self-employedZ'.

Table 3: Forms of self-employment: a summary
Forms of self-employment: a summary
Self-employed 1		Entrepreneurs who supply their own working capital for production of goods or services and depend on value added by personal effort. May have employees.
	Self-employed 1A	Independent contractors who supply goods or services for prices negotiated with series of clients.
	Self-employed 1Α....	Contractors in close and substantial, but not necessarily exclusive, relationship with one client. Approximates to the undefined or ill-defined 'dependent self-employed contractor', and includes many persons engaged and paid by employment agencies.
	Self-employed 1B	Proprietors of businesses retailing goods or services to individual members of public at fixed or advertised prices. May conduct business under franchise.
Self-employed 2		Reflex of self-employed 1 in common law, and indirectly in statutory provisions.
	Self-employed 2....	Reflex of self-employed1A• in common law.
Self-employed 3		The ABS category corresponding to self-employed 1 , but only approximately.
		Persons having some characteristics of self-employed 1 treated under statutory authority as though employees, although not necessarily so designated. Likely to affect many self-employed 1Α.... as well as self-employed Z .
		Employee under contract of employment misrepresented by self or employer as self-employment.

5.3 Taxation reform and survey evidence

The issues outlined by the then Treasurer in 1995 were finally addressed in 2000 as part of extensive tax reforms. Some were also touched on in the ABS forms of employment survey of 1998 (ABS 6359.0), which found that 37 per cent of owner-managers undertook contract work, of whom 48 per cent had one contract. Fifteen per cent of owner-managers were 'in some way dependent' in that a contract prevented subcontracting, or working for multiple clients or, most commonly, that the client had control over working procedures. Rates of dependence were highest in transport and storage, and construction.

Announcing the New Tax System (Alienated Personal Services Income) Bill, which became law in June 2000, the Treasurer explained (Department of the Treasury 2000) that 'earnings from work will be treated the same way for all taxpayers, regardless of whether the income is earned through a company or other entity or…directly by the individual. The measures will not affect genuine independent contractors [and] will not deem an individual to be an employee for the purposes of other legislation or industrial award. The legal status of the entity is not affected in any way.'

It was further explained (ATO 2000) that whereas 'Equity issues can arise when individual contractors or their personal services entities can claim higher deductions than employees providing the same or similar services,' 'Individual contractors affected by the measure [will] generally have the same deductions that would be available to…an employee.' Income was 'personal services income if the client is mainly paying for your personal skills or effort [rather than] the supply or sale of goods'. Income from the production of 'a result, other than services on an hourly rate…is still personal services income, if the result is produced mainly from…personal skills or effort…'

Those to whom the Treasurer was apparently referring when he spoke of 'genuine independent contractors' might be accepted as conducting a 'personal services business', and therefore entitled to claim certain deductions from gross earnings, where less than 80 per cent of their personal services income was from one client in the period of the assessment and either the income was received 'as a direct result of…offers to the public' from at least two clients unrelated to the contractor or each other or the contractor had maintained premises specifically for the purposes of the business or persons or unrelated entities engaged by the contractor had contributed at least 20 per cent of the work required to generate the income.

Where 80 per cent or more of income was from one client, application might be made to the Commissioner of Taxation, who could consider whether failure to satisfy the tests had been temporary and, further, could apply the familiar criteria of whether the work had been for producing a result, whether the contractor was required to supply the necessary plant, equipment or tools, and whether he was liable for the cost of rectifying any defect.

The approach taken was somewhat analogous to that of the AIRC on casual employment, in that it was intended to regulate the consequences of particular forms of employment—in this case for tax liability—without attempting positive definition of those forms. In doubtful cases the Commissioner of Taxation might consider the specified subsidiary criteria, and then only to satisfy himself. Once he had taken reasonable steps to do so, the decision would stand. In the table above this category has been designated 'self-employedX'.

When tax returns came due for lodgement in 2001, protest was raised by and on behalf of people affected by the 80 per cent limit, who complained of the work involved in applying for a determination, the unreasonableness of the limit in their cases, or both. The Treasurer announced that his Government would introduce amendments to provide for self-assessment, subject to audit, and emphasised the criteria of whether the contractors derived the income from producing a result, supplied their own plant, equipment and tools of trade, if required, and were liable for rectification. Also, 'The measures do not apply at all to owner-operator truck drivers or couriers who derive income from their truck or vehicle rather than labour or skills' (Department of the Treasury 2001).

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