Independent contractor or employee? We get that question
all the time. It's important to get it right because of the
consequences. One example is "sham contracting"
Recently, Fair Work Australia (FWA) considered
the question for the purposes of the "small business
employer" exemption for accessing redundancy pay. In Kuat
Chee v Renown Business Solutions Pty Ltd an employee claimed
entitlement to a redundancy payment on termination. The employer,
Renown, claimed it was a "small business employer"
because two "contractors" did not count as employees. FWA
formed a different view.
FWA considered indicators including issues of control,
exclusivity, whether the work can be delegated or subcontracted,
whether income tax is deducted from payment, whether the
"contractor" represents themselves on behalf of the
"employer" and whether the "contractor" runs
their own business.
The "contractors" provided bookkeeping and IT services
via their own businesses. Both invoiced Renown, received gross
payments without the deduction of income tax and provided services
to other businesses. The "contractor" who provided IT
services used his own equipment.
Sounds like typical contracting arrangements right? Wrong!
FWA held that both "contractors" were properly
characterised as employees. This was because they: (a) were subject
to Renown's direct management and control; (b) had a dedicated
workspace within Renown's premises; (c) used Renown email
addresses and therefore held themselves out as being part of
Renown's business; (d) worked regular hours and days from week
to week; and (e) received an agreed rate and therefore did not
quote for the provision of their services. Additionally, Renown
contracted out the IT service provider to its clients to
provide IT services in the same way it contracted its own employees
to undertake consultancy work for its clients.
In this case, the consequences of improper characterisation
meant the difference between having to pay, and not having to pay,
a redundancy entitlement. Additional consequences could include a
prosecution under the "sham" contracting provisions
resulting in fines of up to $33,000 per breach for a company and up
to $6,600 per breach for an individual involved in the breach. This
is one question you don't want to get wrong.
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