Many seek flexibility in the workplace and choices such as casual, part-time, full-time or individual flexibility arrangements go some way to meeting this need. Another alternative is to abandon the traditional employee model altogether and become a “Contractor”. Employees are often tempted to freelance – lured by the promise of escaping the corporate grind, working in their pyjamas and being their own boss. For employers, hiring contractors instead of employees has many advantages. Cutting costs is the primary one. By hiring a staff member as a contractor the employer does not have to pay many of the common employment overheads, for example, workers compensation, leave loading, personal leave and Superannuation*. In addition, the employer can give the contractor work or not, and does not have to pay them if the work is not there. In some industries, for example, call centres, transport, aged care, building and construction, the practise of “sham contracting” is rife. The Fair Work Ombudsman takes a very dim and punitive view of this illegal behaviour.
What is Sham Contracting?
It is when an employer hires an individual as a contractor when they should be hiring them as an employee. Some employers seem to think that if they say an employee is a contractor, then that’s the way it is. But this is not true. There are actual guidelines set down by Fair Work that describe the Contractor role.
What is the difference between a contractor and employee?
The key question to ask yourself is how much control does the worker have? If they can control how the work is done, when, by whom and in what location then it is likely that the worker is a contractor. Contractors:-
- usually run their own business and work for more than one party.
- decide when and where they work and tend to be more project focused rather than working a particular number of hours.
- can sub-contract the tasks to somebody else.
- pay their own costs like Super, tax, GST and insurance.
- usually invoice the employer at the end of the project or at pre-defined milestones.
It’s important to remember whan examining an employees/contractor’s role, that you are looking at the totality of the relationship between the parties not just one or two factors. If you need help determining whether your staff should be treated as employees or contractors you can access this handy government tool. *A note on Superannuation – In some cases the superannuation guarantee laws may apply to payments for work or services by an independent contractor. Should you engage an independent contractor, we suggest you obtain advice in relation to whether you still have a superannuation obligation.
