Understanding contract labour entitlements is a perennially confusing, legal landscape.
The benefits and entitlements available to contractor labour in Australia, under Workplace and Fair Work laws, can sometimes be difficult to clearly determine. Factors influencing this determination include the nature of the worker engagement, the style of work they’re to undertake (time-based and/or output-based, for example), and a host of other factors.
So to answer the above question, the best response is really, ‘it depends’…
The easiest way to simplify this legal conundrum, in our view, is to look at the definitions and statutes of engagement for the two main categories of worker: employees and independent contractors. Then put it in a list. Which is what we’ve done.
Remember this: in order to accurately determine if a worker is a contractor or a permanent staff member, you need to undertake a review of the entire working arrangement, and the specific terms and conditions of their contract.
But overall, here are the differences and specific benefits & responsibilities of each party to the working relationship:
|Superannuation||Mostly, the contractor pays their own super. However, there are situations where contractors are entitled to super. Take a look here. Most often, superannuation isn’t typical of contract labour entitlements.||The employer is required to pay superannuation contributions into the nominated fund, of the employee.|
|Tax||The contractor pays their own tax and GST to the ATO.||The employer deducts income tax.|
|Leave||The contractor isn’t entitled to any paid leave.||The employee is entitled to paid leave. This includes sick, holiday, carers’, personal, long service.|
|The worker has an ABN (commentary across both categories provided)||Having an ABN makes no difference as to whether a worker is deemed an employee or a contractor.
Some business owners are known to request ABNs from workers, or place pressure workers who are employees to obtain one, hoping this will deem the worker, a contractor. This can be an attempt to disguise the employment relationship to make it look like contracting to avoid PAYG withholding and superannuation obligations.
|Work Hours||The contractor works the hours required to complete the set task or deliverable. This is typically done in consultation with the employer.||The employee typically works set work hours (casual employees being the exception).|
|Transportation to work||Providing transportation or covering the cost of transportation, isn’t usually afforded to contractors.||If the employer provides transportation or covers the cost of transportation, then the worker is most likely an employee.|
|Expectation of work to be done||This is limited for a contractor, and is usually based on a specific task, deliverable, or limited timeframe.||For the employee, the expectation of the work to be done is mostly ongoing. However, there are circumstances when an employee is engaged for a specific deliverable or timeframe).|
|Tools of trade (including hardware, software etc)||The contractor will mostly use their own tools and equipment, unless different arrangements are agreed upon within a contract for services, for example. Ultimately, tools of trade are not typically part of contract labour entitlements.||The employer generally provides the required tools and equipment for the worker to execute the job.|
|The business has always used contractors (commentary across both categories provided)||Irrespective of past engagements, before taking on new contractors, a business must check whether the worker is an employee or contractor by examining the proposed working arrangement. If the arrangements are identical, the outcome may still be different; and if a worker is wrongly determined to be a contractor, it bodes poorly for future contractors coming into the business. Read all caveats below.|
|Remuneration||Where the worker has an ABN, they submit invoices for their work as agreed with the organisation. For example, at the conclusion of the contract period, at specific milestones of the contract delivery, or at conclusion of a project.||Where the worker is paid regularly, for example monthly or weekly, the relationship is that of an employee.|
|Risk||The contractor takes on the risk of making a profit or loss on each contract undertaken. They typically bear responsibility if they’re injured whilst delivering the contract, or if they deliver poor quality of work. Will most often have their own insurance policy.||The financial risk is entirely the responsibility of the employer.|
|Control over how the work is delivered||Is reasonably autonomous, with high-level control as to how the work is delivered.||The work is delivered as directed by the employer, on an ongoing basis.|
|Taxes and Medicare levies are deducted from the worker’s pay||Taxes and Medicare levies don’t apply when it comes to contractor labour entitlements.||The worker is likely to be an employee.|
|The worker can freely assign work to someone else||In this scenario, the relationship is a contracting one. Contractors are free to deliver the work as they see relevant & fit, which may include delegating work to others.||Where consent from the employer is required for work to be delegated, the relationship is most likely that of an employee/employer, unless there are specific stipulations in the contract of engagement.|
|Workers are engaged for their specialist skills and qualifications||This scenario doesn’t mean the worker is automatically a contractor. Again, it depends on the terms of the arrangement, the nominated timeframe, and expected output. The worker’s qualifications play no part in the determination.|
As always, in any worker engagement, the requisite caveats apply (and are really, really important for you to be across). These include (but aren’t limited to):
- having all worker engagement contracts, pre-approved with legal counsel especially
- make sure you’re across pay rates and contract labour entitlements, based on the nature of the worker engagements
- remember ‘set and forget’ is not a thing when it comes to contractor engagement, nor of contract labour entitlements
- build credible, realistic parameters into your independent contractor agreements
- think about outsourcing the management of your contractors to experts who will mitigate any risks associated with taking on contract labour (like us!)
Here are some valuable resources for you to keep handy…
- Information for contractors from the Australian Government: http://bit.ly/2n2DZpu
- Information from the Fair Work Ombudsman: http://bit.ly/2n4idld
- ATO information: http://bit.ly/2n7DcU8
- This ATO decision tool is very cool: http://bit.ly/2m0hlhy