… that is the question. (thanks to Shakespeare’s Hamlet, Act III, Scene I for this shameless rip-off!)
Script for a beleaguered employer
‘Hi’ says a worker you’ve used on and off now for a while. ‘I’ve been thinking about becoming a contractor and working for you through my own ABN, and well, I’ve taken the plunge and got my number approved!’ they say chirpily and without pause for you to return the ‘hi’.
They have, however, caught your attention and so you turn to face them with a look of concern starting to form.
‘Now don’t worry’ they continue as they see the look dawning on your face ‘I’ve already spoken to my friend who has done the same thing and I can definitely run all my costs through my own business and you don’t have to pay my super, insurance or my tax anymore!’
The frown that was forming stops mid sentence and is now slowly replaced by a smile as you reply ‘OK, so what do we do now….?’
Does this sound familiar to anyone or have you already had this conversation countless times and in fact, rely on independent contractors for most of your workforce?
Well unless you’re Uber (and that’s a whole other story), here’s what you do need to know to limit your exposure to an independent contractor being found to be your employee… plus links to information on how to avoid the pitfalls of superannuation and safety and one simple key to protection.
The starting point
For those of you who work with us, you’ll know that we’re advocates for matching your contract workforce needs to the life-cycle of your business – for example:
- you want flexibility and support on a project-by-project basis so have engaged the use a Virtual Assistant
- you need your courses run by other professionals as they see fit and don’t mind if the workers do it themselves or bring in someone else
- you want a specific and very technical scope of work outside your company skills completed by a certain time
But why the need for caution?
In the gig economy we find ourselves in, the lines between an employee and subcontractor are getting more and more blurred and so is the potential exposure to paying leave and minimum conditions of employment. Some businesses might make it a rule to never employ an individual subcontractor directly for a long scope of work because of this.
Added to this is the Australian Taxation Office and the State or Federal industrial regulators (e.g. Fair Work) have slightly different aims to enforce in this matter.
An independent contractor for tax and superannuation purposes may be seen as an employee for the purposes of minimum conditions of employment – or vice versa.
What a contractor looks like
Rather than focus on what an employee is, let’s look at factors that could be used to argue a worker is a genuine independent contractor:
- The worker does not work under the supervision of the person who engages him/her.
- The worker has a separate place of work.
- The worker advertises their services to the world at large.
- The worker creates goodwill or saleable assets in the course of their own work.
- The work of the worker involves a profession, trade or distinct calling on the part of the person engaged.
- The worker spends a significant portion of their remuneration on business expenses.
- The worker performs work for others (or has a genuine and practical entitlement to do so)
- The worker can themselves delegate or subcontract the work performed.
- The worker provides and maintains significant tools or equipment.
- The person who engages the worker only remunerates the worker on the completion of tasks.
- The worker provides a quote each time they provide a service
But wait, there’s more!
Workplace Health and Safety (WHS)
Every organisation has an obligation under State safety laws to provide a safe workplace, and this includes for independent contractors.
Here is a link to some relevant information as a starting point to consider your obligations
There are easy and low cost means to address WHS obligations starting with how you identify standard risks and make workers aware of these (and their obligations) during an ‘induction’ process.
This one is often overlooked so if you have a light bulb moment when you read it, you’re not alone! In general, if the independent contractor is performing the work personally, it is likely that they would still be eligible for Superannuation.
There are eligibility criteria as with any employee so best have a quick look here to be sure:
A key to protection
If you do still proceed with engaging independent contractors, ensure there is a written agreement that attempts to demonstrate the intent of the relationship (e.g. company and independent contractor) and to protect the confidentiality of your information and trade secrets.
Such agreements are quite different to your normal contract of employment so seek advice on what might suit you best before engaging someone.
One thing is for certain though, doing this after the fact is like shutting the proverbial gate with the horse long bolted!
Where to go for help?
A quick Google on this topic resulted in 28 million entries on this topic (just for Australia) but the three key sources of truth to start with are the following:
- Australian Taxation Office (for all employers)
- Fair Work Ombudsman (National system employers)
- Dept Mines, Industry Regulation and Safety (State system employers)
Thanks for reading and click the subscribe button below to keep up to date on articles such as these, links to other resources and our own FREE tools and advice.