23 August 2024
Under the Government’s Closing Loopholes legislation, a number of changes to workplace laws are coming into effect on Monday 26 August 2024, including changes to independent contractors.
The New Definition of “Employee”
A new definition of “employee” will be introduced into section 15AA of the Fair Work Act 2009 (Cth) which will be pertinent to determining whether a worker is a true independent contractor or an employee. Determining this classification is crucial as employees are entitled to far more protections under legislation compared to contractors (such as minimum rates, paid leave etc). Businesses may face serious consequences for misclassifying someone as a contractor when they should be an employee (“sham contracting”) and may have to backpay the entitlements they would have received should they had been classified as an employee from the beginning of their contract.
Determining if Someone is a Contractor or an Employee
From 26 August 2024, the Fair Work Act 2009 (Cth) will stipulate that in the determination of whether someone is a contractor or an employee “the real substance, practical reality and true nature of the relationship” must be taken into account.
This change will reverse the former position which said that the employee/contractor status must be determined only by looking at the terms of the contract under which the worker is engaged.
When determining whether a worker is a contractor or an employee, the following factors must be considered:
- How much control the business has over the worker and how work is performed
- Financial responsibility and risk
- Who supplies the tools and equipment
- Ability to delegate / subcontract work
- Hours of work
- Expectation of ongoing work
- Whether services are provided to other businesses
- How the worker is paid and how this pay is calculated
In summary, the whole working arrangement / relationship will need to be considered, rather than just the written contract between the parties. However, this will not apply under other legislation (such as tax, super or workers compensation), where the High Court’s previous rulings will still prevail and the terms of the contract will hold the importance.
Sham Contracting
Prior to 27 February 2024, businesses could avoid penalties for sham contracting if they could prove that they did not know and were not reckless in the matter of whether a worker should have been engaged as an employee.
Moving forward, to avoid sham contracting offences, businesses will need to show that they reasonably believed that a misclassified worker should have been engaged as a contractor. In determining whether this belief is reasonable, a court will consider the size and nature of the enterprise, and any other relevant matters.
Challenging Unfair Contract Terms
Under existing legislation (the Independent Contractors Act 2006), if a contractor believes to have harsh or unfair terms in their contracts they would need to apply to a federal court for review, resulting in an expensive and complicated process.
From 26 August 2024, a new regime will be introduced will which allow applications to be made to the Fair Work Commission to set aside, amend, or vary, independent contractor agreements on unfairness grounds. This will only be available to contractors earning less than the contractor high income threshold (which is yet to be set).
Extra Protections for Contractors in the Road Transport Industry & Performing Digital Platform Work
These types of contractors are known as ‘regulated workers’. The new provisions affecting them include:
- A new ability for the Fair Work Commission to set minimum standards or guidelines for either type of work (similar to modern awards).
- Unions and road transport or digital platform operators will be able to negotiate collective agreements (similar to enterprise agreements) improving on those standards.
- Regulated workers will now be able to challenge unfair loss of work through the Fair Work Commission (similar to right of unfair dismissal, eligibility is subject to earning less than the “contractor high income threshold”).
Regulated workers will also have the same rights and protections that have been introduced for employees regarding workplace delegates.
How to Prepare for These Changes:
- Review legislation changes and update any relevant policies or procedures.
- Review any existing contractor arrangements.
- Review workforce requirements and the need for contractors vs employees.
If you would like more information on how these changes may impact your or your organisation, please contact us via the link below.
