Casual Conversion – An in-depth explanation

In March 2021, significant changes to The Fair Work Act passed through parliament. The Fair Work Amendment (Supporting Australia’s Jobs and Economic Recovery) Bill 2020 was introduced to address the uncertainty of defining casual workers, sparked by major court cases Skene and Rossato.

While these changes give more certainty to employers who hire contingent workers, they also create a significant administrative burden, relating to updating contracts and casual conversion.

Read on to find out the new responsibilities for you, labour hire organisations you use, and the contractors you employ.

What do the amendments cover?

The amendments make the following changes to the Fair Work Act relating to employing casual workers:

  • For the first time in the history of the Fair Work Act, defining casual work.
  • Casual loading offsetting permanent entitlements, such as leave.
  • Requiring employers of casuals to consult with them about conversion to permanent employment.
  • Preventing employers from terminating casuals to circumvent obligations.

How has casual work been defined?

The new definition requires that:

  • The employee is offered a job.
  • The offer does not include a ‘firm advance commitment’ that the work will continue indefinitely with an agreed pattern of work.
  • The employee accepts the offer knowing that there is no firm advance commitment to become an employee.

What is the absence of a firm advanced commitment?

The absence of a firm advance commitment is indicated by:

  • The employer offering hours of work and it’s the employee’s choice to work or not.
  • The employee being offered hours of work when the business needs them to work.
  • The employment being described as casual.
  • The employee being paid a casual loading.

How will agreements need to change to meet the new definition?

Casual employees must be free to accept or decline work at any time. This means that labour hire organisations must be free to offer or not offer work at any time.

Many organisations may need to alter the following terms in their contracts to align to this key principle:

  • By not providing a notice period (other than a standard 1 hour / half day / 1-day single unit of work base notice period)
  • Displaying casual loading separately.
  • Specifically highlighting which permanent entitlements are replaced by casual loading.

Independent contractors that are employed under Pty Ltd or Sole Trader agreements are not affected by this change, as they are not considered employees.

What are the potential implications for defining casual work?

The greater clarity in the definition of casual employment and the requirement that this be reflected in the casual employment agreement will make the uncertain nature of casual employment more obvious to employees and clients.​ For labour hire organisations, there is less discretion in what can be agreed with casual employees​.

Currently engaged employees are affected due to the change in the law, as the change is effective at the end of September 2021 regardless of the current start or end date.​

Other forms of employment that provide more certainty may be more attractive to some contingent workers and clients over the longer term depending on their needs​.

What are the rules around converting casuals to permanent?

All casual employees who have completed 12 months of service must be assessed as to their suitability to convert to a permanent role. The assessment is based on whether the casual employee has worked a regular pattern of hours on an ongoing basis for at least the last six months.​

The labour hire organisation must advise each casual employee the outcome of this assessment in writing within 21 days of their 12-month anniversary.​ The outcomes for this assessment could be one of the following:

  • The worker isn’t eligible for conversion and will continue as a casual employee.
  • The worker is offered the option to convert to permanent, but they decline (or not respond to the offer). In this case, they continue as a casual employee.
  • They accept the offer of conversion and convert to permanent.

Should casual workers elect to be converted to permanent, labour hire organisations may use maximum term employment contracts.

What is maximum term employment?

Labour hire organisations need a way to provide workers with permanent entitlements, while still ensuring their contract has an end date. We call this maximum term employment.

This type of engagement manages the casual conversion obligations by making conversion offers to workers who meet certain criteria. It also allows companies a method of engaging workers that avoids risks associated with casual workers.

These systems and processes will need to account for managing the conversion to permanent, as well as the entitlements of maximum term employees such as leave. Some conditions that organisations are implementing with maximum term employment contracts include:

  • An agreed period of engagement (start/end date).
  • Notice period (minimum 2 weeks).
  • Agreed hours of work per week.
  • Leave entitlements in accordance with the National Employment Standards.
  • A rate of pay that excludes 25% casual loading.

Implications for organisations using maximum term employment contracts

If an organisation wants to implement maximum term contracts, they need to consider the following:

  • They must commit to the amount of work available (which by definition, has been available in the six months prior)​.
  • The payrate of the worker will be lower, but the client bill rate to the labour hire organisation may remain the same.
  • The labour hire organisation provides full NES entitlements to the employee.
  • Changes can occur with notice.

How CXC is responding to these changes

All companies with casual workers (including CXC and recruitment suppliers) will need to alter contractual terms to update casual conversion process changes, as well as the processes for assessing and communicating the individual’s casual conversion rights.

CXC understands the effect of the new legislation and complies with the requirements, following the same methodology that we have outlined above.

This is a change that CXC is at the forefront in advising our clients. We see payroll providers having a role in evolving their offering to meet these ever-changing regulations.

What’s ahead? Potential changes down the road

In 2022, the Labor Party won Australia’s general election, meaning that further amendments to the Fair Work Act and casual conversion could be on the way.

We’ve closely examined these changes in the latest workforce risk report, as well as a number of other proposals the government has outlined to reduce or prevent insecure work.

In 2021, the Liberal government changed the Fair Work Act to include a definition of casual workers. This change meant that when deciding whether a worker was an employee or a contractor, the contract would be key, rather than what the relationship ends up looking like.

One of the biggest proposed changes by the current government is reverting the definition of casual work, meaning the law would look at the totality of the relationship between the worker and the employer before making a decision.

What does the election mean for casual conversion?

While the ALP weren’t explicit on how they would amend the casual conversion process, they have said they wanted to provide a “clearer pathway to permanent work”. Potential changes could include:

  • More scrutiny over employers’ reasoning for rejecting offers of permanent work.
  • More enforceability when adjudicating disputes.
  • Widening up the scheme to include small business employers.
  • Continued offers of permanent employment beyond the 12-month anniversary.

Regardless, it’s likely that the changes to the definition of casual workers will take this engagement option off the table for many employers. This would have the flow on effect of reducing contractors in the workplace, and negate the need for casual conversion.