Employment Law News September 2007
INDEPENDENT CONTRACTORS
On 1 March 2007 the Independent Contractors Act 2006 (Cth) came into effect. So any company or business who engages contractors is caught under this new legislation.
Why did this legislation come into effect?
In 1994 the Howard Government pledged to protect and encourage independent contracting as their election commitment. You could say this is another of the Governments Work Choices initiatives.
Who is an independent contractor?
Legally, an independent contract or is defined as someone who contracts to provide their own services, other than as an employee. Employees on the other hand have no business of their own and work under a contract of service.
The fine line between employees and independent contractors is still determined subject to existing common law principles ie the true nature of the relationship as opposed to contractual terms. Generally a contractor should have:
- a written contract
- be paid on invoice
- an ABN
- the right to perform work for others
- the right to engage others to help do their work
- the risk of rectifying faulty work and the opportunity for profit
- no right to usual employee entitlements such as annual and sick leave.
Who is covered under the legislation?
Regardless of whether the contractor operates under a business or company structure, it is still caught under the legislation. However, where the contractor operates under a corporate structure, the Act only applies where the work is carried out by a director of the company or a family member of the director.
Existing contracts are not covered under the Act, unless the parties choose to opt into the new Act. Independent contracts for private and domestic purposes are also excluded.
What is the effect of the legislation?
In essence the Act aims to:
- protect contractors from being deemed employees under state industrial relations laws;
- protects them from unfair arrangements
- protects them against sham arrangements.
Contractors can have their contracts reviewed in the Federal Magistrates Court, or the Federal Court should they feel they are unfair, similar to the previously used s.106 of the Industrial Relations Act (NSW).
The Act also prohibits employers from forcing existing employees into sham contracts. These employees subject to sham contracts can request the Federal Magistrates Court for relief.
However, other deeming laws still apply including:
- workers compensation
- superannuation
- payroll tax.
where the contract is wholly or principally for labour or if the contractor almost exclusively contracts for one principal.
There are strict time limits for bringing a claim under the Independent Contractors Act
If you have any concerns about how the new legislation affects your business then please do not hesitate to contact Annette Fontana of this office assistance.