When are independent contractors actually employees?
CCIQ has come across recent cases of employees being taken off the books and re-signed as contractors.
But the Fair Work Commission has issued a warning to employers.
Be careful in this area as contractors can still be considered employees under certain IR laws.
And penalties can range up to $50,000.
Contracts can work both ways: sometimes employees request it for tax purposes or to set their own rate of pay; while employers think if they make an employee a contractor they won’t have to pay sick leave, annual leave and other entitlements.
Do you engage independent contractors? And how often?
How do you pay independent contractors? Do you provide tools and equipment for the worker to complete the required tasks? Do you withhold PAYG instalments? Do your contractors take annual leave?
These are some of the factors that are taken into consideration when determining if independent contractors are genuine contractors or if they are actually employees of the business.
In a recent case, two housekeepers at a WA company ceased being employees and became independent contractors of a labour hire business, through a triangular contracting arrangement with their employer.
While all parties were under the impression they were now independent contractors of the business and as there was an independent contracting arrangement in place, the fact the two employees continued performing the same work for their employer aided in determining that the independent contracting arrangement was in fact null and that an implied contract of employment actually existed in this instance.
The Fair Work Ombudsman (FWO) claimed the provisions of the Fair Work Act for sham contracting were being breached by both parties by misrepresenting the two housekeepers, in that they were performing work as independent contractors.
In the initial stages, on appeal, the Federal Court and the Full Court of the Federal Court both dismissed the FWO’s claim. The courts determined, in these circumstances, that the employer and labour hire business were not in breach of the act because it was in relation to the contract between the employer and the employee and not between the employee and a third party.
On appeal, the High Court ruled that the employer was in fact in breach of the act when it informed the housekeepers that the contracts they were employed under were independent contracting arrangements rather than a contract of employment. As the work they were performing for the employer remained the same, it was found the independent contractor arrangements in place were not legitimate and did not reflect those of a genuine independent contractor.
The housekeepers were in fact found to be employees of their original employer and working under implied contracts of employment. The case was then handed back to the Federal Court to identify the appropriate penalties.
Independent contractor arrangements are not the sole identifier that someone is as an independent contractor.
There are many varying factors to take into consideration when determining if a contractor is a genuine independent contractor. Written or verbal communications and actions, implied or performed, play a heavier role in identifying an employee or a contractor.
As seen in the case above, although the housekeepers were informed they were independent contractors, the fact they were doing the same work for their employer, which meant they were employed under an implied contract of employment.
Employers are prohibited from misrepresenting employment arrangements as independent contracting arrangements, under the sham contracting provisions within the FW Act and if found to be in breach of the provisions, penalties of up to $54,000 per contravention for a company, or $10,800 for an individual could apply.
If you’re unsure about the make-up of your workforce and would like to minimise the risks to you and your business, contact the Employer Assistance team for advice at 1300 731 988 or email@example.com
DISCLAIMER: This document is an information source only. Despite our best efforts, CCIQ makes no statements, representations or warranties about the accuracy or completeness of the information and disclaims responsibility for all liability for all loss or damage you might incur as a result of the information being inaccurate or incomplete in any way, and for any reason. The information contained in this document is not intended to be nor should it be relied upon as a substitute for legal or other professional advice.