Free Contractor Payroll: If it sounds too good to be true it probably is…

Given very recent high profile events in the contractor payroll sector, many clients are revisiting their strategy around how they engage non-permanent workers (commonly referred to as ‘contractors’ or ‘contingent workers’).

I went to write on this subject a number of times now but as the sector is quite complex and very misunderstood, I have found it difficult to figure out where to start…..

I think the easiest place to start is the common misconception that ‘contractor payroll’ is just that: payroll. I wrote a previous article on this, so don’t want to cover old ground, but in short, most ‘contractor payroll’ organisations are more accurately ‘workforce management companies’ or ‘on-hire companies’, and are better referred to as such. Unlike a payroll provider who simply processes payroll, an on-hire company is either totally or largely responsible for many of the statutory ’employment/tax’ obligations such as:

  • Modern Awards
  • Worker’s Compensation (WC)
  • Work Health & Safety (WHS)
  • Professional Indemnity and Public Liability (PI/PL)
  • Employment Taxes
  • Payroll Tax

Also, most ‘on hire’ companies (including Recruitment Agencies who engage, manage and payroll the contractors) process payment to ‘their’ contractors prior to receiving payment from the client. Hence, they finance workers’ wages prior to payment for the client. As you can imagine this can be a significant amount of money to be out of pocket if the volume of contractors is large.

Anyway …where am I going with this?

For a number of years, I was amazed that a ‘Contractor Payroll’ company here in Australia, was offering services for free! Not only that, there were also rumours they were offering large rebates to individuals and companies who referred contractors (from recent press articles I read, this appears to be true).

The simple question appeared to be: ‘how are they making money while maintaining compliance?’

It seemed it was too good to be true….. and it was.

Another point to note is that non-compliance to this sector is not unique to Australia. Very recently the directors of a UK Contractor Payroll/Umbrella Company who defrauded £45million have been jailed for a total of almost three decades, in what is said to be the UK’s largest ever ‘payroll fraud’ of its kind.

My hope is that with all this publicity, this sector will finally get the attention it deserves and that organisations engaging non-permanent talent will scrutinise the legitimacy of these arrangements.

Along with this, there is a need for government bodies’ to redesign and adopt legislation appropriate to this sector and minimise ‘the grey areas’ to ensure consistency and minimise the potential of rogue offerings.

This guest post, courtesy of CXC Global’s Colum McGrath.

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