Key Points for Changes in Independent Contractors
Does your workforce include independent contractors?
If your workforce includes independent contractors—those who have an ABN or are a proprietary limited company — it’s crucial to be aware of the key legislative changes effective from August 26, 2024 (or August 26, 2025, if your business falls under the Small Business Code definition).
In this week’s Akyra blog, we explore upcoming changes to legislation surrounding independent contractors, and provide some key tips on how to ensure compliance.
And be sure to download our free checklist at the end of our blog to help you identify whether your worker may be an employee or an independent contractor.
What do these changes actually mean?
Under the new legislation, you must conduct a thorough evaluation of the relationship to determine whether it is one of employment or independent contracting – i.e. evaluate what the worker actually does and what you do as well as the written contract.
This will not be a ‘tick the box’ process as you will need to think through:
- the composition of the actual performance and day-to-day operations in relation to that worker; and
- both what is written in the contract and how that plays out in reality.
The evaluation process should consider:
- How the worker is remunerated.
- Whether the worker can delegate their tasks.
- The worker’s ability to work for other entities.
- Control over work methods and schedules.
- Provision of tools and equipment.
- Entitlement to leave provisions.
- Liability for commercial risk.
Each evaluation will be specific to the business’s arrangements and operational realities. The amendments clarify that if the relationship functions as an employment relationship, it will be treated as such, regardless of the written contract.
Other key changes
- Unfair Contract Terms: Independent contractors will now have the right to apply to the Fair Work Commission if they believe their services contract contains unfair terms. This provides a new avenue for contractors to seek redress and ensures that their contracts are fair and reasonable.
- Opt-Out Provisions: Contractors earning above a certain income threshold will have the option to ‘opt out’ of the new definition through a notification process. This allows high-earning contractors to maintain their current contractual arrangements if they prefer.
- Impact on Gig Economy: The legislation also addresses the gig economy by introducing minimum standards for ‘employee-like’ workers performing digital platform work. This includes protections against unfair deactivation from digital platforms and the ability to dispute unfair contract terms.
Potential risks
Misclassifying a worker as a contractor when they are actually an employee can lead to significant claims for back pay and penalties for sham contracting. This includes:
- Misclassification of a worker who then has the right to make a claim for back pay based on any entitlements that might apply back to 27 February 2024.
- Recklessly or knowingly misclassifying a worker can lead to financial penalties for sham contracting under the Fair Work Act.
Other risks include:
- Reputational damage: non-compliance can lead to reputational damage, which can affect a business’s relationships with clients, contractors and the public.
- Operational disruptions: addressing non-compliance issues can cause operational disruptions, as businesses may need to allocate resources to rectify breaches and ensure future compliance.
- Superannuation entitlements: non-compliance with the Superannuation Guarantee Act where the business is liable for superannuation of worker who is an independent contractor where the works under the contract are ‘wholly or principally for their labour’.
Ensuring compliance with the new legislation is crucial to avoid these penalties and maintain smooth business operations.
What are sham contracts?
As an employer, you must not represent a contract of employment as a contract for services – i.e. if the parties know or are reckless to the fact that the relationship is actually an employment relationship, but nevertheless treat it as one of independent contractor
Misrepresenting an employment relationship as a contract for services can result in severe penalties under the new amendments. Employers must prove they had a reasonable belief that the classification was accurate, considering the size and nature of the business.
Key takeaways
The new laws significantly impact the current workplace landscape. In order to ensure compliance, we suggest that businesses should:
- Evaluate relationships: before engaging an independent contractor, assess the totality of the relationship in light of the new legislative definition.
- Review current engagements: ensure existing relationships with independent contractors are not misconstrued as employment relationships.
- Consider opt-out provisions: determine if independent contractors fall within the “opt-out” regime and notify them of their right to opt out.
- Comprehensive written agreements: ensure all contractor arrangements are bound by comprehensive written agreements defining the engagement terms and conditions.
- Update contracts: review and update template contracts to ensure they are fair and reasonable under the new unfair contract terms regime and accurately reflect the principal-contractor relationship.
Akyra can assist your business with any questions or concerns regarding independent contractor arrangements and compliance with the new legislation. Contact us today to book an obligation-free consultation.
FREE DOWNLOAD: Contractor vs. Employee Checklist
Disclaimer – Reliance on Content
The material distributed is general information only. The information supplied is not intended to be legal or other professional advice, nor should it be relied upon as such. You should seek legal or professional advice in relation to your specific situation.
