Sham contractor trap

For those of you who love the movies Lock, Stock and Two Smoking Barrels and Snatch, two of director Guy Ritchie’s greats, you will no doubt recall the mobster Brick Top’s line to Turkish in Snatch: “You can’t change fighters at the last minute…”

The sentiments of Brick Top were perhaps not ringing in former minister for employment Kevin Andrews’ ear when he introduced the Independent Contractors Bill 2006 into Parliament. One of the core promises of the bill, now enacted, was to prevent employers forcing workers to become independent contractors.

The legislation keeps the common law definition of what is an employee and an independent contractor, and places a reverse onus on the employer – actively saying, prove you are not cheating!

Australia has seen a dramatic move in the engagement of labour with increased casualisation and contractor use. Many of the contractors are clearly employees. They work exclusively for the employer, they work as directed, use no personal plant or equipment, have settled hours, are paid regularly… and so it goes on.

The average on-cost for a worker is 22% to 25%. The average on-cost for a contractor is under 10%. Furthermore there is no leave, leave replacement or other benefits payable.

So yes, forcing a person to become a contractor, when they are an employee, has superficial business benefits.

But a recent NSW prosecution launched by the Workplace Ombudsman makes it clear – you can’t simply call an employee a contractor. You will be prosecuted.

There are more obvious risks with the tax office and state revenue authorities, who generally adopt the common law test of employees also.

So really all bets are lost if you choose to call someone a contractor when they’re not!

As an employer, honesty and integrity with your staff drives loyalty, production, quality and skill development. Dishonest processes, like the types described above, have only short-term benefits. In the long term, you will have to face the music.

 Andrew Douglas is the founder, principal lawyer and managing director of Douglas Workplace & Litigation Lawyers. Andrew is an experienced commercial litigation and workplace lawyer, who acts both as a solicitor and advocate.