Have you ever had a worker who would prefer to contract with you rather than be your employee? They have an ABN and may even have their own service company which invoices for the services provided. So when will it be a problem?

Well, when it comes to independent contractors, issues often arise with workers compensation, pay-roll tax and compulsory superannuation payments. You might think you have those issues covered (perhaps by assuming responsibility for these obligations yourself). But the difficulty is that contractors don’t have access to many of the minimum entitlements provided for in the Fair Work Act or under awards.

Therefore, the Fair Work Act makes it an offence for you to tell a worker they are a contractor if they are an employee in the eyes of the law. If you are prosecuted for this offence, you could be penalised up to $33,000 (if you are a corporation).

You will have a defence if you didn’t know that the agreement was an employment agreement, but you cannot have been “reckless” to that fact.

What is being “reckless”?

Last week the Federal Magistrates’ Court (CFMEU v Nubrick [2009] FMCA 981 7/10/09) issued a ruling about when you might be “reckless” as to whether your workers are employees, not contractors. The Court decided that to be “reckless” you would need to have been aware of the risk that a worker may be regarded as an employee but still continued to treat them as a contractor.

The lesson from this case is that if you are engaging a contractor and you have some doubt as to whether the relationship is one of employment, get some advice about the true status of the relationship. Otherwise, you could be prosecuted – by the Fair Work Ombudsman, a union or the worker.

Regards,

Charles Power
Editor-in-Chief
Employment Law Practical Handbook

Tags: ABN, contract, employee, fair work act, Federal Magistrates Court, independent contractors, pay-roll, service company, superannuation, workers compensation