Are your independent contractors just employees in disguise?

Recently we have had a number of human resources enquiries from employers about obtaining independent contractor agreements. Sometimes, upon learning more about the specific work relationship, the worker in question most likely should be an employee and the employer is actually at risk of what is termed Sham Contracting under the Fair Work Act 2009.

Sham contracting occurs when an employer deliberately disguises an employee/employer relationship as an independent contracting arrangement. This generally occurs in situations when a business needs work to be done by someone, but it doesn’t want the responsibility of paying for employee entitlements such as annual leave, workers’ compensation and superannuation.

Quite often employers we speak to confirm that the reason the worker has been engaged as an independent contractor is due to it being more cost effective to do so. Their thinking is that if they can avoid paying entitlements to the worker, employing someone becomes more affordable. The problem with this scenario is that the choice to save a few bucks could very easily result in fines that are substantial in comparison to the money saved. Plus, there is generally the requirement to pay back to the employee the entitlements such as annual leave and superannuation that have not been issued.

We recommend all employers review any independent contractor arrangements to ensure they are not creating a risk. There are a number of common factors that should be considered when determining who is an independent contractor and who is an employee. Some of these include the degree of control the worker has over the work performed, who controls the hours of work, whether anyone else can do the work, how the worker is engaged for the work, and who provides the tools and equipment for the work. The relationship should be looked at holistically rather than considering only one of the elements and it is always a good idea to have this review conducted by a professional.

In summary, it’s important to highlight that employees cannot be independent contractors simply by calling them such in a contract – careful consideration must be given to what is the true nature of the relationship. A very well-known quote by Justice Gray from the 1989 case Re Porter: Ex Parte TWU (1989) 34 IR 179 sums up this fact well and inspiration for our lead blog picture:

“Parties cannot create something which has every feature of a rooster, but call it a duck and insist that everybody else recognise it as a duck”.

If your company uses independent contractors and you are concerned, we offer a free initial consultation for employers. Call us on 1300 15 10 11 or book online here.

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