They ain't gonna work on Maggie’s Farm: Contractors vs Employees

I ain't gonna work on Maggie's farm no more

I ain't gonna work for Maggie's brother no more

No, I ain't gonna work for Maggie's brother no more

Well, he hands you a nickel, he hands you a dime

He asks you with a grin if you're havin' a good time

Then he fines you every time you slam the door

Maggie’s Farm by Bob Dylan

What is an employee vs an independent contractor?

The distinction between employees and independent contractors – once seemingly straightforward – has again become a minefield of challenges.

There are pros and cons with having independent contractors over employees, however these may not matter any more if the relationship is properly scrutinised and properly classified.

In short, it’s not the label, rather the substance of the relationship.

Previously, having a clear independent contractor agreement was enough to argue that staff were independent contractors.  However, the law has changed again, and the courts will look at the substance of the relationship, not only the documentation.

Australian courts use a “multi-factor test” including:

1.     Control – Does the employer direct how the work is to be performed or only the outcome?

2.     Integration – Is the worker genuinely independent or part of the team?

3.     Risk – Who bears the risks – the individual or the organisation?

4.    Equipment – Who provides the tools and equipment needed to complete the job?

5.    Exclusivity – Can the worker freely perform work for competitors?

Risks of getting it wrong

Why can’t we just put a label on it and be done with it?

Unfortunately getting this distinction wrong has a number of consequences.  Firstly, this could include backpay obligations for minimum wages, leave entitlements (such as annual, personal or long service leave) and superannuation payments.  Secondly, this could also involve additional penalties and charges for failing to pay superannuation, or even penalties if the arrangement is considered a “sham.”

If a worker is suddenly deemed an employee, they then also have access potentially to unfair dismissal provisions in the Fair Work Act 2009 (Cth).  The Australian Tax Office may also review any payments and whether an organisation has complied with its PAYG withholding obligations.  Overall, the risk in terms of time, cost and organisational reputation is high.

What can employers’ do?

There are a number of practical steps employers can take to review whether their workers are correctly employees vs independent contractors.

Firstly, audit your existing arrangements – Is the substance of your relationship with your contractors a genuine independent contractor relationship? Are they running their own business or just part of yours?

Secondly, document the business reality – Ensure that your practices align with true contractor relationships – including ensuring that the employer’s level of control is not like an employee relationship.  For example, are you paying for deliverables or time? Do you allow the contractor to determine how the work is performed? Are you providing equipment or are they? Can they delegate or subcontract work? Can they work for other clients?

Thirdly, consider alternatives – If you don’t have genuine contractor relationships, what are your options? If you end up with an employment relationship – should it be casual, part-time or full time? Are your systems set up for this?

Fourthly, be consistent – consider how you are treating similar workers.  Avoid any claims of discrimination by only offering some workers employment contracts and not others if they are all essentially performing the same work.

Finally, seek professional advice if required.

Who’s working at your farm?

The independent contractor vs employee distinction has gone through a number of changes.  It was a complex multi-factorial test at one stage, then there were a range of court decisions that said look at the contract, but the law has since swung back to looking at the substance of the relationship.

It is in an employer’s interests to get it right due to the number of risks involved.  But perhaps the biggest risk is that if you get it wrong, people simply “ain’t gonna work on your farm any more.”

Remotely Legal can assist employers and boards on all aspects of employment law, including advising on difficult people issues, reviewing policies and assisting with enterprise bargaining.  Remotely Legal can train your boards and management teams on how to deal with incidents and investigations.  Remotely Legal can also be your fully outsourced HR and people legal team.

RL Investigations, part of Remotely Legal, are a team of highly experienced and qualified lawyers and investigators, who can function as your independent, external investigation team providing fast, comprehensive and reliable investigation reports, workplace culture reviews and suggestions for organisational improvement. RL Investigations can also help your internal HR or investigation team to improve their investigations and assist decision makers in considering the right factors when making key decisions.

This blog is general advice only.  Please obtain legal advice in relation to your specific circumstances.  This blog was written by a human so please seek permission if you wish to copy any of it.