Volunteers or Employees? What Every Charity Must Know to Stay Legally Compliant

Introduction

For any charity or not-for-profit organisation, correctly distinguishing between volunteers and employees is a critical responsibility, yet the legal distinctions can often be complex. This understanding is fundamental for every charity to ensure lawful operations, effective management, and adherence to all pertinent legal obligations.

This legal guide is designed to clarify these critical differences, providing essential insights for your organisation. By understanding how to properly classify those who work with volunteers and paid staff, your charity can maintain a compliant structure, uphold its duty of care, and meet all necessary legal requirements confidently.

Defining Roles: What Distinguishes Volunteers from Employees in Your Charity

Key Characteristics of a Genuine Volunteer for Your Not-for-Profit Organisation

Understanding the nature of a genuine volunteer relationship is crucial for any charity or not-for-profit organisation. A volunteer is fundamentally an individual who offers their time and effort willingly, without the expectation or legal requirement of financial gain or reward.

The core purpose of their work is typically to benefit someone else or contribute to the common good, rather than for personal financial enrichment.

Several key characteristics define a genuine volunteering arrangement within your organisation’s structure:

• No Intention to Create Legal Relations: Both the volunteer and the charity do not intend to form a legally binding employment relationship. The arrangement is based on goodwill rather than contractual obligations concerning the work itself.
• No Obligation to Perform Work: A volunteer is under no obligation to attend the workplace or carry out specific tasks. They can choose when and how they contribute their time, and either party can generally end the arrangement at any time.
• No Expectation of Payment: Volunteers do not expect to be paid for their work. While they may be reimbursed for reasonable out-of-pocket expenses incurred during their volunteering activities, these payments are not wages or salary.
• Voluntary Basis of Work: The services are provided on an ‘ex-gratia’ basis, meaning they are offered voluntarily without a legally enforceable obligation to do so.

It is important for every charity to recognise these attributes to correctly classify individuals assisting their operations and to ensure that any volunteer agreement reflects this understanding.

Identifying an Employment Relationship within Your Charity Structure

Distinguishing an employee from a volunteer involves looking at the substance and reality of the working relationship within your charity. An employment relationship typically exists when an individual performs ongoing work for the organisation under specific conditions that imply a legally binding arrangement.

If an employment relationship is identified, the individual is entitled to various legal protections and benefits under legislation such as the Fair Work Act 2009 (Cth).

Key indicators that point towards an employment relationship within your charity structure include:

• Obligation to Perform Work and Control: The individual is required to perform specific duties and is subject to the control, direction, and supervision of the organisation regarding how, when, and where the work is done. There’s an ongoing expectation of work.
• Set Work Hours and Regular Payment: Work hours are often set by the employer, an enterprise agreement, or a modern award. Crucially, the individual is paid regularly (e.g., weekly, fortnightly, or monthly) for the time worked, and this payment is characteristic of a wage or salary.
• Integration into the Organisation: The worker is often presented as part of the organisation, for example, by wearing a uniform or using company equipment provided for their role. They perform tasks that are integral to the charity’s operations.
• Provision of Entitlements: Employees are typically entitled to benefits such as paid leave (annual, personal/carer’s), superannuation contributions, and notice of termination, which are not features of a volunteer arrangement.

Recognising these signs helps your not-for-profit organisation to correctly classify workers, thereby ensuring compliance with legal obligations and fostering fair treatment for everyone contributing to your mission. Misclassifying an employee as a volunteer can lead to significant legal and financial repercussions for the charity.

Core Legal & Financial Distinctions Your Charity Must Recognise

Remuneration & Benefits: A Comparison for Your Charity Workers

A fundamental distinction between employees and volunteers within your charity or not-for-profit organisation lies in how they are compensated. Employees receive wages or salaries for their work, which are subject to regular payment schedules, such as weekly, fortnightly, or monthly. These payments reflect the employment relationship and the expectation of remuneration for services rendered.

Understanding these costs is vital for every charity when budgeting and planning.

Volunteers, on the other hand, offer their time and skills without the expectation of financial gain. While they are not paid for their work, it is common and acceptable for a charity to reimburse volunteers for legitimate out-of-pocket expenses incurred while performing their duties. Such expenses might include:

• Travel costs to and from the volunteering location
• Costs associated with necessary equipment or materials for their volunteer role
• Phone usage directly related to their volunteer activities

It is important for your organisation to request evidence, like receipts, for these expenses and maintain clear records of all reimbursements.

Sometimes, a charity may wish to provide an honorarium or a one-off payment to a volunteer as a token of appreciation. However, your organisation must exercise caution with such payments. If these payments are regular, substantial, or calculated based on hours worked, they could risk being interpreted as wages, potentially creating an unintended employment relationship and triggering associated legal obligations.

For instance, a payment calculated with reference to time spent with the organisation or hours worked may be deemed a wage.

Taxation also differs significantly between employees and volunteers. Employers are required to deduct income tax (Pay As You Go (PAYG) withholding) from payments made to employees. Volunteers generally do not have to pay tax on reimbursements or benefits they receive in their capacity as a volunteer, although some exceptions can apply.

Correctly managing these payment and benefit distinctions is crucial for your charity structure to ensure compliance and maintain the integrity of your volunteer program.

Understanding Leave Superannuation & Taxation Obligations for Your Organisation

Employees of your charity are entitled to various forms of leave under the National Employment Standards (NES) as part of the Fair Work Act 2009 (Cth). These entitlements are a significant aspect of the employment relationship and include:

• Annual leave: Paid time off work
• Personal/carer’s leave: Paid leave for personal illness, injury, or to care for an immediate family or household member
• Long service leave: Extended paid leave after a long period of continuous service, governed by state or territory laws

For example, the Long Service Leave Act 1955 (NSW) provides specific entitlements for eligible employees in New South Wales. Casual employees may receive a loading in lieu of some of these leave entitlements.

Volunteers, by contrast, are not entitled to these forms of paid leave as they do not have an employment relationship with the organisation.

Superannuation is another key financial obligation for your charity when it employs staff. Under the Superannuation Guarantee (Administration) Act 1992 (Cth), employers must make superannuation contributions for eligible employees into a nominated superannuation fund. This applies to full-time, part-time, and casual employees who meet the eligibility criteria, such as being over 18 years of age, or under 18 and working more than 30 hours a week.

Volunteers do not receive superannuation contributions because they are not paid for their work.

Regarding taxation, as mentioned earlier, employers must withhold income tax (PAYG) from employee wages and remit this to the Australian Taxation Office (ATO). Volunteers typically do not pay tax on payments or benefits received in their volunteer capacity, provided these are genuine reimbursements or minor benefits and not disguised wages.

It is crucial for every charity to correctly classify individuals to ensure these legal and financial obligations are met, as misclassifying an employee as a volunteer can lead to liabilities for unpaid wages, superannuation, and leave entitlements, as well as potential penalties.

Ensuring Safety & Protection: Work Health & Safety (WHS) & Insurance for Your Charity

Your Charity’s Duty of Care & WHS Responsibilities for All Workers

Every charity has a fundamental responsibility to ensure the safety and well-being of all individuals who perform work for the organisation, encompassing both employees and volunteers. This duty of care generally arises from common law principles of negligence and specific Work Health and Safety (WHS) or Occupational Health and Safety (OHS) legislation applicable in each state and territory.

Understanding these legal obligations is crucial for the proper structure and operation of your not-for-profit organisation. Under the model WHS laws, an organisation that employs at least one person is typically considered a ‘person conducting a business or undertaking’ (PCBU).

If your charity is a PCBU, it owes WHS duties to all its workers, which explicitly includes volunteers alongside employees. These duties require the charity to take reasonably practicable steps to protect workers from harm. However, a ‘volunteer association’ – an organisation run entirely by volunteers with no paid employees – is generally not considered a PCBU, and the model WHS Act may not apply. Despite this exception, a general common law duty of care to ensure the safety of volunteers still exists.

Fulfilling this duty of care involves several key actions for your charity:

• Providing adequate information, training, instruction, and supervision to all workers, including volunteers, to enable them to perform their tasks safely
• Conducting thorough risk assessments for all roles and activities undertaken by employees and volunteers to identify potential hazards
• Implementing control measures to eliminate or minimise identified risks and ensuring overall safe working conditions for everyone involved with the organisation

Essential Insurance Coverage for Your Volunteers & Employees in Your Not-for-Profit Organisation

Appropriate insurance coverage is a critical component of protecting your charity, its employees, and its volunteers from financial and legal repercussions arising from workplace incidents. The legal requirements for insurance differ significantly between employees and volunteers, and it is vital for your not-for-profit organisation to understand these distinctions.

For employees, charities are legally required by state and territory laws to have workers’ compensation insurance. This insurance provides financial support to employees who are injured at work or become ill due to their work, typically covering lost wages and medical expenses. This is a non-negotiable legal obligation for any charity with paid staff.

Volunteers, on the other hand, are generally not covered by workers’ compensation insurance schemes, as they are not considered employees. To address this gap and protect these valuable members of your organisation, charities should consider specific insurance policies:

• Volunteer Personal Accident Insurance: This type of policy is designed to cover volunteers for injuries they might sustain while performing their duties for the charity. Coverage often includes medical expenses, loss of income if the injury prevents them from working in their usual paid employment, and lump-sum payments for permanent disability or accidental death.
• Public Liability Insurance: It is essential for your charity’s public liability insurance to extend to cover the actions of your volunteers. This protects the organisation against claims for compensation if a volunteer’s actions inadvertently cause injury to a third party or damage to property.

Securing these types of insurance demonstrates that your charity values its workforce, including those who give their time freely, and takes its duty of care seriously.

Formalising Relationships: The Importance of Agreements for Your Charity

Crafting Effective Volunteer Agreements for Your Not-for-Profit Organisation

For any charity or not-for-profit organisation, having clear legal documents is essential when individuals work with volunteers. A well-drafted volunteer agreement helps define the relationship and protect the organisation’s interests, ensuring that the voluntary nature of the engagement is understood by all parties.

It is important that every charity words its volunteer agreement carefully to avoid any interpretation that it is an employment contract. The agreement should clearly state expectations rather than imposing obligations.

Key elements to include in a volunteer agreement for your not-for-profit organisation are:

• Voluntary Nature: An express acknowledgement that the individual is a volunteer, not an employee, and that there is no intention from either the volunteer or the charity to create a legally binding employment relationship. The agreement should state that the volunteer is under no obligation to attend or perform work and can choose when and how they contribute their time.
• Role Description: An outline of the volunteer’s role and the types of activities they might undertake, framed as expectations rather than duties. This helps clarify the scope of their involvement without creating a sense of contractual obligation.
• Reimbursement of Expenses: Details of how the volunteer will be reimbursed for reasonable out-of-pocket expenses, if applicable, ensuring it is clear these are not payments for work.
• Intellectual Property and Confidentiality: Clauses to protect the organisation’s Intellectual Property (IP) and confidential information. These sections can be legally binding and should clarify that any IP created by the volunteer during their engagement belongs to the charity, and that confidential information must not be misused.
• Work Health and Safety: Information on the organisation’s WHS policies and procedures, outlining the shared responsibility for maintaining a safe environment.
• Termination of Agreement: Clarification that the volunteer arrangement can be ended by either the volunteer or the organisation at any time, reflecting the non-binding nature of the relationship concerning work performance.

Additionally, the volunteer agreement should ideally include an express acknowledgement from the volunteer that they are a volunteer and not an employee, don’t have a contract with the organisation, and don’t have any intention to create a legal relationship with the organisation regarding the work itself.

Establishing Clear Employment Contracts within Your Organisation

When your charity employs staff, establishing clear employment contracts is a fundamental legal requirement and a cornerstone of good governance for your organisation. These legal documents define the terms of the employment relationship, outlining the duties, entitlements, and expectations for both the employee and the not-for-profit organisation.

An employment contract provides certainty and helps prevent misunderstandings or disputes. It should accurately reflect the real substance, practical reality, and true nature of the employment relationship, as emphasised by changes under the Fair Work Legislation Amendment (Closing Loopholes No. 2) Bill 2023.

Key components of an employment contract for your charity include:

• Position Details: The job title, a summary of the role within the charity structure, and the type of employment (e.g., full-time, part-time, casual, fixed-term).
• Key Responsibilities and Duties: A clear description of the tasks and responsibilities the employee is expected to perform.
• Remuneration and Entitlements: Details of the salary or wages, payment schedule, superannuation contributions, and applicable leave entitlements (such as annual leave, personal/carer’s leave, and long service leave) in line with the NES and any relevant modern award or enterprise agreement.
• Hours of Work: The expected hours of work, including any provisions for overtime or flexible working arrangements if applicable.
• Reporting Structure: Clarification of who the employee reports to within the organisation.
• Confidentiality and Intellectual Property: Clauses to protect the charity’s sensitive information and clarify ownership of any IP created during employment.
• Termination Conditions: The notice period required for termination by either party and conditions under which employment may be terminated.
• Policies and Procedures: Reference to the charity’s policies and procedures that the employee must comply with.

Developing a comprehensive position description beforehand can greatly assist in drafting an accurate and effective employment contract. This ensures that all necessary legal obligations are met by the charity.

Understanding the Legal Differences

Understanding the correct procedures for ending work arrangements is crucial for every charity and not-for-profit organisation. The processes for managing the departure of employees and volunteers differ significantly, primarily due to the distinct legal nature of their respective relationships with the organisation.

Employee Termination Requirements

When an employment relationship ends, most full-time and part-time employees are entitled to:

• A notice period, or payment in lieu of notice, as outlined in the NES under the Fair Work Act 2009 (Cth)
• Potentially longer notice periods if stipulated in a modern award, enterprise agreement, or the individual’s employment contract

Casual employees, however, are generally not entitled to a notice period unless their contract of employment states otherwise.

It is important for your charity to be aware that employees have protections against unfair dismissal and other adverse actions. Legal advice should always be sought by the organisation before terminating an employee’s engagement to ensure all legal obligations are met.

Volunteer Departure Processes

The departure process for individuals who work with volunteers in your not-for-profit organisation is typically more straightforward. A genuine volunteer relationship can be ended by either:

• The volunteer themselves, or
• The charity

This can occur at any time, often without the need for a formal notice period. This flexibility reflects the voluntary and non-binding nature of the arrangement concerning work performance. Consequently, volunteers are not able to make unfair or unlawful dismissal claims.

However, every charity must be cautious: if a person classified as a volunteer is later found to have been an employee in substance, they may be entitled to employment-related benefits and protections upon termination.

The Risks of Misclassification for Your Not-for-Profit Organisation

It is crucial for every charity and not-for-profit organisation to correctly classify individuals who work with them. Misclassifying an employee as a volunteer can lead to significant legal and financial consequences for your organisation.

While agreements might label a relationship as voluntary, courts will examine the actual substance, practical reality, and true nature of the working arrangement. This thorough examination ensures that the classification reflects the genuine nature of the relationship rather than just what appears on paper.

If a person engaged as a volunteer is later found to possess the attributes of an employee, your charity could be held liable for a range of entitlements. These potential liabilities include:

• Unpaid wages for the work performed
• Superannuation contributions that should have been made
• Minimum employee entitlements such as paid leave (annual, personal/carer’s leave)
• Other benefits and protections afforded to employees under the Fair Work Act 2009 (Cth)

Beyond these financial obligations, your not-for-profit organisation could also face penalties. The Fair Work Act 2009 (Cth) specifically prohibits “sham contracting arrangements,” where an employer intentionally misrepresents an employment relationship as an independent contracting or volunteer arrangement to avoid legal obligations.

Such actions can attract serious penalties, further impacting the charity’s resources and reputation. Therefore, ensuring the correct classification from the outset is vital for legal compliance and the sound structure of your organisation.

Conclusion

Correctly distinguishing between employees and volunteers is fundamental for every charity to ensure lawful operations, manage financial obligations, and uphold its duty of care. This legal guide has highlighted the key differences in their roles, legal and financial entitlements, safety responsibilities, the importance of formal agreements, procedures for managing departures, and the significant risks associated with misclassification for your not-for-profit organisation.

To ensure your charity structure is compliant and to address any specific questions regarding your legal documents or employment relationships, it is prudent to seek professional guidance. Contact LawBridge today for trusted expertise and specialised not-for-profit lawyers to help your organisation operate lawfully and ethically with confidence.

Frequently Asked Questions for Your Charity