'It's The Law' - Engage Correctly
At this time of the year many businesses in the Wimmera are considering taking on new staff to assist them in the new year. Ensuring staff are engaged correctly is incredibly important as a recent case of mine shows.
Recently I helped an employee who had been treated poorly by their employer successfully sue their employer under the Fair Work Act’s sham contracting provisions. We successfully proved that the employer disguised the employment relationship as an independent contracting arrangement.
Determining whether a person has been hired as an independent contractor legitimately or whether they should have been employed as an employee can be quite complex. The following are some common factors that may contribute to determining whether a person is an employee or independent contractor as detailed by FairWork Australia:
• Control over how work is performed - An employee will typically perform work under the direction and control of their employer, on an ongoing basis. Whereas an independent contractor typically has a high level of control in how the work is done.
• Hours of work - An employee will typically work standard or set hours. Whereas an independent contractor typically decides what hours to work to complete the specific task through agreement.
• Expectation of work - An employee will typically have an expectation of ongoing work. Whereas an independent contractor is typically engaged for a specific task.
• Risk - An employee will typically bear no financial risk (this is the responsibility of their employer). Whereas an independent contractor typically bears the risk for making a profit or loss on each task and usually bears responsibility and liability for poor work or injury sustained while performing the task. As such, a contractor will generally have their own insurance policy.
• Superannuation - An employee will typically have superannuation contributions paid into a nominated superannuation fund by their employer. Whereas an independent contractor typically pays their own superannuation.
• Tools and equipment - An employee will typically have all tools and equipment provided by the employer, or a tool allowance is provided. Whereas an independent contractor typically uses their own tools and equipment.
• Tax - An employee will typically have income tax deducted by their employer. Whereas an independent contractor typically pays their own tax and GST to the Australian Taxation Office.
• Method of payment - An employee will typically be paid regularly (for example, weekly/fortnightly/monthly). Whereas an independent contractor typically has obtained an ABN and submits an invoice for work completed or is paid at the end of the contract or project.
• Leave - An employee will typically be entitled to receive paid leave (for example, annual leave, personal/carers' leave, long service leave) or receive a loading in lieu of leave entitlements in the case of casual employees. Whereas an independent contractor typically does not receive paid leave.
In my recent case, three of the above nine considerations indicated that my client was an independent contractor rather than an employee. However, looking at the totality of the relationship the Industrial Division of the Magistrates’ Court found that my client was an employee and awarded him almost $100,000 for unpaid entitlements and civil penalties.
This case shows the importance to employers of determining what the relationship is before engaging another worker to assist their business.
If you are an employer or an employee and aren’t sure the terms of employment are fair, the Fairwork Australia website provides some helpful resources which may assist you. If you require specific legal advice, then you should visit your solicitor.
This article is intended to be used as a guide only. It is not, and is not intended to be, advice on any specific matter. Neither Patrick nor O’Brien & Smith Lawyers accept responsibility for any acts or omissions resulting from reliance upon the content of this article. Before acting on the basis of any material in this article, we recommend that you consult your lawyer.