Do you engage independent contractors? If so, you might be interested to hear about the Fair Work Ombudsman’s approach to the murky area of “sham contracting” and where they found many businesses had started crossing the line… Providing a timely reminder to review your circumstances and make sure that you are not breaching the law.
Fair Work Australia’s Crackdown
Last year Fair Work Australia cracked down on businesses that were attempting to disguise employment relationships as independent contractor relationships to avoid employer obligations such as minimum pay rates, superannuation, leave and other entitlements. Otherwise known as sham contracting, arrangements that aren’t genuine risk falling foul of the Fair Work Act, and bringing a business under the watchful eyes of the ATO.
No place to hide for directors and HR managers
Falling out of favour with the Fair Work Ombudsman is certainly no laughing matter – just ask the director of Centennial Financial Services who was personally fined after a court ruled that their dealings with their “independent contractors” was actually sham contracting.
Don’t think being a director keeps you out of the woods either – Centennial’s HR manager was also found to have breached workplace laws by failing to give his employer advice on its obligations under the Workplace Relations Act.
Who is the target for 2012??
The Ombudsman’s crackdown last year focused on the cleaning, hair-and-beauty and call centre industries – what industries will be next in 2012…? Assume nothing, other than that you should be on your guard. There can be genuine contractors in any industry, but the more a person you have engaged looks like an employee, acts like an employee and is treated by you like an employee, then no matter what you call them, they may in fact be deemed to be an employee. The Ombudsman’s report, by way of example, noted that it is difficult to accept that a cleaner is an independent contractor when the worker is hired by a single principal contractor, wears their uniform, uses their equipment, and takes on little commercial risk. But the real focus of concern, and a red flag for the Ombudsman, is where outsourced work involves workers receiving pay below the award rates and organisations avoiding obligations of an employer.
If you regularly engage contractors, and especially if you engage them for lengthy periods of time, you should routinely review the relationship to assess whether the arrangements could be viewed as in fact being more like employment. The risk otherwise is that of getting in trouble in relation to various laws including workplace law, tax law, superannuation law and even workers compensation law.
What makes a worker an independent contractor?
So what sorts of factors point to a relationship being that of an independent contractor, and that of an employee? The problem with this area of the law is that it can all be a bit grey.
There isn’t one single factor that will definitively indicate what the nature of the relationship is, because every contractual relationship is unique.
The courts tend to take into account all the circumstances of the relationship, placing emphasis on different factors depending on the circumstances, and will likely look at the following:
- Control – the worker decides how the work will be performed and what expertise is required
- Liability and risk – the worker is responsible for the risk involved in the work, eg the cost of rectifying substandard work
- Location and hours of work – the worker decides the time and place of work
- Leave entitlements – the worker doesn’t receive any leave
- Tax and Super – the worker pays their own superannuation and tax, including GST
- Payment – the worker doesn’t receive a regular salary or wage, but only gets paid when set tasks or stages of work are completed as outlined in the contract, and generally submits an invoice
- Equipment and expenses – the worker provides their own equipment, tools or other necessities required to complete the work and is responsible for their own expenses
- Scheduling – the worker is engaged for a set task and there is no guarantee of ongoing work
- Ability to work for others – the worker can work for more than one payer
- Ability to refuse work – the worker only performs the tasks that have been contractually agreed upon
- Appointment – the worker finds work by promoting and advertising their own services
Give us a call if you would like us to have a look at your situation, we are more than happy to look over your contracts and give you some pointers.
Disclaimer: The material contained on this website is provided for general information purposes only and does not constitute legal advice. You should not depend upon any information appearing on this website without seeking legal advice. We do not guarantee that the contents of this website will be accurate, complete or up-to-date.
