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Independent Contractors vs Employees: Are you at risk of sham contracting?

August 8, 2016


Do you engage independent contractors? How do you know that they are not employees? Have you been exposed to the risk of a huge underpayment claim as well as substantial penalties?

The reality is that any business which engages independent contractors is at risk. You cannot be certain that your contractors are not in fact employees.

What’s the difference?

Whether you choose to engage someone as an independent contractor or as an employee is a crucial business decision that will have far reaching implications for that individual’s rights and entitlements. These entitlements may include responsibility for superannuation, payroll tax, workers’ compensation, minimum rates of pay, leave entitlements and access to unfair dismissal.

It is not enough to simply describe someone as either a ‘contractor’ or an ‘employee’. As one Judge colourfully put it, you “cannot create something which has every feature of a rooster, but call it a duck”. And there are big penalties for those who get it wrong; up to $54,000 per contravention!

How you can minimise the risk:

HRA Cloud is our innovative Human Resources Information Solution (HRIS). This cradle-to-grave management system provides you with the right tools and processes to minimise the risk of being exposed to penalties for sham contracting.

Our Contractor Engagement Checklist is specifically designed to give you the tools you need to lawfully engage independent contractors. It contains an array of documentation, including:

  • Robust Independent Contractor Agreements;
  • Confidentiality Agreements;
  • A suite of Company Policies and Procedures; and
  • A place to upload and store the person’s insurance details, including Workers Compensation Insurance, Public Liability Insurance and Professional Indemnity Insurance.

Sham contracting is set to become an even bigger issue for Australian businesses with at least one law firm reportedly considering legal action to determine whether ‘technology services’ such as Uber, Foodora and Deliveroo are using sham contracting to evade minimum rights and entitlements.

Our advice? Watch this space.

For more information on the recommendations and what this means for you, clients should contact the HR Assured team. If you’d like more information about the benefits of becoming an HR Assured client contact us today for an informal chat.