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Do you engage contractors in your business? Know your legal responsibilities

Last week, we looked at an unfair dismissal claim against Foodora Australia.

If you haven’t read it yet, you can read the details of the case here.

To summarise, the Fair Work Commission ruled that a delivery rider, Joshua Klooger, was an employee – despite a service agreement that classified him as an independent contractor. Mr Klooger then won the unfair dismissal case.

This ruling has had huge implications for the gig economy and how employers engage contractors.

In light of this landmark decision, we thought it might be worth going over your legal responsibilities if you engage contractors, and the implications of misclassifying your employees.

What to do if you engage contractors

If you engage contractors, it is essential to get the facts of the relationship right.

Business owners need to take a proactive approach to reviewing arrangements to ensure that the business is not exposed to material liabilities. Key factors include:

  • Whether the work involves a particular profession or skill set.
  • The level of control the contractor has over how the contract is executed.
  • The ability of the contractor to delegate work to another person.
  • Whether the contractor supplies his own tools or equipment.
  • Whether the contractor has his own place of business.
  • The contractor’s ability to generate goodwill or saleable assets during the course of the contract.
  • How the contractor is paid (for hours worked or a result).
  • The level of risk the contractor bears.
  • Whether the contractor is independent or in reality, simply ‘part and parcel’ of the organisation they contract to.

 

No single factor is determinative; it is the weight of evidence, on balance, across all of the factors.

The implications of misclassifying a worker

The implications of misclassifying a worker go well beyond industrial relations.

If a business misclassifies an employee, it impacts on superannuation guarantee (SG), PAYG withholding, workers compensation, and payroll tax. These entitlements will often need to be met even if the misclassification was a genuine mistake.

For SG obligations, there is no real time limit on the recovery of outstanding obligations. However, the ATO will generally only go back 5 years unless the individual employee can prove an entitlement beyond this point.

Remember that employers that fail to make their superannuation guarantee payments on time don’t just pay the outstanding superannuation but are subject to the SG charge (SGC) and lodge a Superannuation Guarantee Statement.

SGC is made up of:

  • The employee’s superannuation guarantee shortfall amount
  • Interest of 10% per annum
  • An administration fee of $20 for each employee with a shortfall per quarter.

 

Unlike normal superannuation guarantee contributions, SGC amounts are not deductible to the employer, even when the liability has been satisfied.

Getting it wrong can be a very costly exercise particularly if the error is evident over a number of years.

If you need help setting up your reviewing your arrangements with your contractors, give us a call. We can help ensure everything in your business is running smoothly – and in accordance with your legal responsibilities.

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