The risks associated with mischaracterising “gig workers” are likely to increase, and employers must remain vigilant and think carefully about the implications of who is working for them and how, writes Gordon Williams
A great deal is being written, here and overseas, about workers in the gig economy. For example, people are asking – are they employees or contractors, what benefits should they receive and can they make the usual employee type claims?
Courts and tribunals are also having to grapple with questions around gig workers and related employment arrangements. For example, both the UK Employment Tribunal and the California Labor Commission in the United States recently decided that an individual Uber driver was, in fact, an employee of Uber.
As things currently stand in Australia, the traditional ’employee/contractor’ distinction continues to apply to all workers, including those in the rapidly developing gig economy. Many would say this poses real difficulties as the distinction is not nuanced enough to recognise how work, and those who do it, is changing.
A new category of worker?
As a result, there are calls for the creation of new categories of worker (including ‘dependent contractors’) and providing them with equal access to rights that have traditionally been available only to employees.
A good example is a recently published report by University of Adelaide professor of law, Andrew Stewart, and director of the Australia Institute’s Centre for Future Work, Jim Stanford, ‘Regulating work in the gig economy: What are the options?‘ (published in The Economic and Labour Relations Review on 7 August 2017).
As the report notes in its opening paragraphs: “The growth of the gig economy, typified by online platforms and isolated independent workers, poses fundamental challenges to traditional models for regulating work and setting minimum standards. It is not clear that existing regulations apply to gig workers, let alone that they can be effectively enforced in the digital economy.”
“Both the UK Employment Tribunal and the California Labor Commission in the United States recently decided that an individual Uber driver was, in fact, an employee of Uber”
Legislative reform to accommodate new ways of working is not new in some countries. For example, in 2010, the UK passed legislation implementing the EU Agency Workers Directive, giving agency workers there (of which, estimates say, there are up to 1 million) similar rights to a company’s employees.
However, unless and until the law changes here in Australia, the status quo applies. So what does that mean for your atypical worker?
Contractor or FTE?
The starting point is whether your worker is an employee or contractor of your organisation. You’ll probably be familiar with the tests the Courts have traditionally applied. Being under a company’s direction and control is one of the most important indicators and usually means the worker is an employee. Even where that’s not the case, if the worker is clearly working in, and for the benefit of, someone else’s business, as opposed to carrying on their own, they may be considered to be an employee. Recent case law suggests this may be the case where a ‘contractor’ has just one client (resulting in the client being the ’employer’).
If you’re puzzling over this issue, a useful resource to help you make the call is the ATO’s “Employee/contractor decision tool” (which can be found on the ATO’s website). However, you may want to take some specific advice just to be sure.
Even if your assessment is that the worker is not an employee at law, it is possible that she or he will still be entitled to certain employee type benefits. The most obvious examples are superannuation and workers’ compensation.
Superannuation and workers’ compensation
Relevantly, superannuation contributions must be paid on a contractor’s fees if she or he works under a contract that is wholly or principally for their labour, which includes both physical work and intellectual and artistic efforts (often referred to as a ‘deemed employee’). This is the case even if the contractor has an ABN. It’s not always easy to work out which contractors this covers.
For example, individuals who are independent contractors at law but who cannot delegate the work they are engaged to perform could well be ‘deemed employees’ for SGC purposes, as could contractors who are paid by reference to hours worked (ie the payment is not for a result). However, if the contractor performs work through an entity like a company or trust then the contractor would not be a ‘deemed employee’. A failure to make the necessary superannuation contributions can result in the imposition of the superannuation guarantee charge plus interest and penalties.
“The starting point is whether your worker is an employee or contractor of your organisation”
The other issue is workers’ compensation. In some States, workers’ compensation legislation (and coverage) also extends to workers who are ‘deemed employees’. For example, in NSW, there are a number of categories of persons who can be found to be ‘deemed workers’. Relevantly, that includes certain contractors engaged under a contract of service who do not subcontract their work or employ any workers. If appropriate insurance arrangements are not in place covering these contractors, an employer may have to back pay any unpaid premiums, repay any amounts paid by the relevant WorkCover agency to the injured contractor and additional penalties.
If your organisation engages multiple contractors, both these issues are certainly worth considering.
Risks of contractors vs employees
There are also other risks. An organisation that characterises a worker as a contractor where she or he is, in fact, an employee:
- May have breached the sham contracting provisions in the Fair Work Act 2009. Among other things, mispresenting an employment relationship as a contractor relationship can lead to penalties of up to $63,000. Individuals (which could include members of the HR team or other managers) who are knowingly involved in such a misrepresentation can be personally liable and fined up to $12,600;
- May be liable for underpayment claims. Even where contractors are well paid and earn far more than an employee, they could still make a claim for annual leave and long service leave entitlements. These can be significant, especially where the contractor has worked for an organisation for an extended period;
- May be liable for penalties for not withholding PAYG, as well as unpaid FBT on any non-cash benefits, plus interest and penalties;
- May be liable for unpaid payroll tax, although there are rules which deem amounts paid to contractors to be taxable wages for payroll tax purposes in certain circumstances;
- May be subject to an unfair dismissal claim if the worker’s engagement is terminated. Of course, other claims can be made by true contractors as well as employees (including adverse action claims).
“Even where contractors are well paid and earn far more than an employee, they could still make a claim for annual leave and long service leave entitlements”
Although the law in Australia hasn’t yet changed, the way people are working has and will. As a result, the risks associated with mischaracterising atypical workers are likely to increase. Employers must remain vigilant and think carefully about the implications of who is working for them and how.
Gig workers: 4 key points for HR
- It is getting harder, not easier, to accurately characterise some workers as employees or contractors
- Although there are calls for reform, the current employee/contractor tests continue to apply – including who exercises direction and control
- Getting it wrong can be serious – resulting in claims for unpaid leave, sham contracting or unpaid tax (among others)
- Even true contractors can be eligible for some employee type benefits – eg. superannuation and workers’ compensation
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