Employees and Contractors
Are you fully aware of the different rights and obligations of employees vs independent contractors and the impact that misrepresenting the working relationship can have on your business?
Many small and medium enterprise owners consider that an independent contractor arrangement is the answer to many industrial relations problems. For example:
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I don't want to pay for annual leave and personal leave
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I don't want to pay them if I have a downturn in work
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I don't want to pay superannuation or have the responsibility of tax
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I don't want to be caught for unfair dismissal
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I want my workers to work harder and only get paid for what they do
This manner of engaging workers would be the economists dream. Based purely on market forces and without regulatory intervention.
However, our workplaces are governed by workplace laws, taxation laws, health and safety laws and superannuation laws, whether state or federal.
Each of these regulatory areas have laws that impact the employment relationship (employer and employee) as well as the principal and contractor relationship (business owner and independent contractor).
For this reason it is necessary to determine the true relationship between the engaging entity and the person providing the service.
Just because your contractor has an ABN does not make them a genuine independent contractor.
Each of the regulatory areas have their own determinative questions however they focus on a number of similar working relationship attributes:
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Who controls the way in which the work is done and when the work is done.
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Is there a right to employ others?
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Who suffers the commercial loss if the work is not performed to requirements?
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Is the remuneration higher than would be received by employees doing the same work and is it commercially relevant to the work being provided?
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Does the person work for others?
It is important for SME's to understand the implications of engaging a person to perform as an independent contractor if the underlying relationship does not truly support that of a commercial arrangement. Properly drafted commercial contracts are essential.
Under the sham contracting provisions of the Workplace Relations Act an Employer may be prosecuted if the relationship is misrepresented or if duress or coercion is applied to an existing employee to become an independent contractor. Under this legislation the fines are significant.
Similarly, federal Tax and Superannuation laws will also impose significant penalties if an Employer is found to be avoiding taxation and superannuation obligations by engaging persons as 'independent contractors' and not complying with legislative requirements.
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Are you a company who thinks ahead?