5 Questions Answered - Engaging independent contractors
|Services:||People & Workplace|
|Date:||15 November 2017|
|Author:||Maree Skinner, Partner|
Contracting arrangements have become increasingly common as the ‘gig economy’ has gained momentum and the composition of Australia’s workforce has shifted, with many workers seeking greater autonomy and flexibility. It’s important for employers to ensure contractors are engaged appropriately to avoid the risk of claims from workers or prosecution by regulators.
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1. What factors will make a worker a contractor instead of an employee?
For Fair Work Act purposes, employees and contractors are distinguished using a multi-factor test that involves considering various questions including: How much direction or control does the company exercise over how and when work is performed? Who pays expenses and provides equipment required for the work? Is the worker allowed to delegate or perform work for others? Is the worker held out as a company representative, such as with a uniform or business cards? How are the worker’s payment terms managed and does the worker have any negotiating ability? Does the worker receive employee entitlements such as paid leave? No single factor will be determinative. The more factors in favour of one relationship, the more likely a court will be to find that this relationship exists.
2. If a worker asks to be treated as a contractor, isn’t that enough to make them a contractor?
No. The substance of the relationship is what matters. If enough factors point towards the existence of an employment relationship, this will prevail over any ‘agreement’ or ‘request’ by the worker to be treated as a contractor.
3. Can a ‘swap’ be made by dismissing an employee for the purpose of being re-engaged as a contractor?
No. This is prohibited by the Fair Work Act’s ‘sham contracting’ provisions, which also prohibit employers from making false statements to convince an employee to become a contractor, and from representing a relationship as an independent contracting one when it is in reality an employment relationship (sections 357-359).
4. What risks arise for employers from incorrectly classifying workers as contractors?
Aside from potential sham contracting liability, employers may face claims for underpayment of wages and other employee entitlements as well as face the risk of unfair dismissal claims if engagements are terminated without a fair process. There can also be penalties for failure to withhold PAYG income tax or make superannuation contributions, although the relevant tests for tax and superannuation purposes are different.
5. Only the company would be held liable for any breaches, right?
Wrong. The accessorial liability provisions of the Fair Work Act mean that individuals involved in the breach can also be held liable for the breach. The Fair Work Ombudsman has been making increasing use of these provisions to prosecute not only company directors, but also other individuals such as managers and HR professionals.
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