Ignore Close Scrutiny of Contractor Arrangements at Your Peril
From 1 July 2019 the Fair Work Ombudsman began ramping up its investigations to identify sham contracting arrangements. Sham Contracting legislation was introduced by Peter Costello and John Howard under the Coalition Government back in 2006.
The recent reforms are designed to target employers who contract out work to people who are really employees and not truly contractors. In other words they are seeking to mischaracterize relationships as principal and contractor relationships when they are truly employer and employee relationships.
By doing so organizations are seeking to avoid having to meeting worker entitlements such as:
- Superannuation guarantee payments;
- Workers compensation payments;
- Long service leave entitlements; and
- Other statutory entitlements.
The consequence for business owners is that wherever possible their contract documentation and processes need to mirror a relationship which actually reflects a principal contractor relationship as much as possible.
Things like payment cycles, obligations to remedy defective work, paying a contractor for a stated outcome rather than for time, and various other factors, should be critically examined on a case by case basis.
And just because a party may be a contractor doesn’t mean superannuation payments won’t be payable, so close consideration needs to be given to this issue.
If you need guidance on whether or not your arrangements with contractors are appropriately characterized please contact our Workplace Law team.