People Smartz Blog

Laws regarding the use of Independent Contractors have been around for quite a few years now.  These laws are designed to provide increased protection against employers who try and avoid their employment obligations by using what are called "Sham" agreements.

Independent contractors run their own business and should be free to negotiate their fees and working arrangements.  They may provide their services to any number of clients.

Employees have set minimum entitlements (payment of wages, annual leave, personal leave etc) and are subject to the control and direction of their employer.

A "sham" agreement occurs when an employer deliberately disguises an employment relationship as an independent contracting arrangement in order to avoid paying an employee his or her entitlements.  It is possible that an employer who makes arrangements in this way could be fined up to $33,000. 

Many businesses I work with enter into independent contractors agreements in order to "benefit" both the business and the person doing the work. There is no intention to deceive or avoid obligations - just an intention to "do the right thing by all" by improving the return to the "employee" and to save the company money.

Unfortunately, this could be opening up a minefield for the business and the independent contractor.  If the arrangement has been made with the intention of avoiding obligations on the businesses part, it can result in fines, back taxes and other costly penalties.  There can also be tax ramifications for the independent contractor.

When reviewing whether the working relationship is one of employment or independent contract, the Fair Work Ombudsman will look at the circumstances.  Things such as how the work is performed, who bears the commercial risk, whether the work is results based or not, who sets the hours of work, whether the individual has a right to delegate work and who provides the equipment used are some of the many factors which can be taken into account.

I strongly recommend to my clients before entering into independent contractors arrangements that they closely review the relationship they are forming.  While the benefits of utilising independent contractors are significant, if not structured properly, they also introduce an element of risk to the business.

People Smartz is able to assist businesses with the process of employing independent contractors.  If you have, or are considering, independent contractors in your business - contact us today.

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