I bet you used to think that using Independent Contractors was easy. Essentially, they needed to be working for you for no more than 80% of the time, have an ABN and invoice you for the work, and – bingo – you had an Independent Contractor. No need to worry about PAYG, workers compensation or unfair dismissal rights. Unfortunately, it never really was that simple and, these days, it is more important than ever that you get this right.
With organisations increasingly looking to engage a flexible workforce, utilise the gig economy and get stuff done using Virtual Assistants and the like, it’s tempting to go down the independent contractor path. Be aware, however, that you’re potentially stepping into a minefield.
Did you know for instance that the ATO and Fair Work have their own tests for Independent Contractors? Whilst you might be meeting the obligations for the ATO, Fair Work could see it very differently. They have up to 10 ‘touch points’ that they look at to ascertain whether an independent contractor is actually an employee, and they’re not looking too favourably these days on organisations that don’t get it right. Nor will these touch points give you a definitive answer as to whether your newly minted worker is the Independent Contractor you believe them to be, or really an employee in disguise.
The term used is ‘Sham Contracting’, and Fair Work are very happy to proceed with legal action against organisations who are deemed to be avoiding their legal obligations. This could result in fines for both the employer (up to $63K per breach) and its directors (up to $12,600 per breach), in addition to back pay of entitlements for workers and damages, etc. It really can work out as an expensive exercise if you are wrong.
So how do you know?
It comes down to assessing a few things about your agreement with the worker, like:
- What does it look like from the paperwork (contracts, invoices, ABNs etc)?
- What does it look like on the ground?
- What is the level of control you have over the worker and the work done?
Some things to think about:
- Do you control the hours that your Independent Contractors work and the specifics of how the work is done?
- Are they wearing a uniform that has your company name on it and using your tools and equipment?
- Could they subcontract out the work to someone else if they wanted to?
These are just some of the things that Fair Work will consider when assessing whether you have a Sham Contracting arrangement in place.
So if you are thinking about taking on Independent Contractors and want to minimise your risk, or you have Independent Contractors and want to check your arrangements, let us know. Our new Employment Status service may be just what you need.
Book a Free Call at a time to suit you, with one of our Employee Experts.