Independent contracting occurs when one business works for another. Generally, independent contractors use their own equipment, choose the hours they work and decide how work is done.
independent contractor or employee?
The relationship between the parties determines whether a person is an employee or an independent contractor. As mentioned in chapter 5 ‘different forms of employment’, an independent contractor has a high level of control in how the work is carried out and can set their hours in agreement with the company that has hired them.
- pay their own tax (and Goods and Services Tax (GST) where applicable)
- pay their own superannuation
- use their own tools and equipment to complete the contract
- bear the risk for making a profit or loss on each task or project
- have an ABN and submit an invoice for work completed at the end of the contract or project
- do not receive any paid leave.
The Independent Contractors Act 2006 and the Fair Work Act 2009 protects the rights and entitlements of independent contractors.
According to the Fair Work Ombudsman, a sham contract is when an employer deliberately disguises an employment relationship as an independent contracting arrangement, instead of engaging the worker as an employee in order to avoid paying employee entitlements such as superannuation, leave, and certain taxes.
Under the sham contracting provisions of the Fair Work Act 2009 an employer cannot:
- misrepresent an employment relationship or a proposed employment arrangement as an independent contracting arrangement
- dismiss or threaten to dismiss an employee for the purpose of engaging them as an independent contractor
- make a knowingly false statement to persuade or influence an employee to become an independent contractor.
The Fair Work Ombudsman, a union, or the Australian Building and Construction Commission can take action against an employer for the above behaviour. In 2017 a company was fined $58,740 after a High Court appeal by the Fair Work Ombudsman for attempting to convert three employees into independent contractors.
the gig economy
The way we work is changing: generations Y and Z are looking for flexible working arrangements and, together with rapid technological advancements, the nine-to-five workday is gradually becoming a thing of the past. ‘The gig economy’ is increasing as talent chooses to get paid for the ‘gigs’ they complete, in return for greater flexibility in working hours, and increased control over their work-life balance. However, as members of the ‘gig economy’ are classified as independent contractors, they are not eligible for any employee entitlements such as paid leave or protected against unfair dismissal.
According to a 2016 Deloitte’s study, Australia is at the forefront of adopting this trend. Second only to India, a huge 81% of Australian employers consider the ‘gig economy’ trend to be important or very important. It will have real implications for HR practice as a variety of independent employment agreements will need to be assessed and managed.