Contractor or Employee?

Employers who disguise an employment relationship as an independent contracting arrangement may still be liable to pay employee entitlements and payroll tax, according to a recent Federal Court case.

In Ace Insurance Ltd v Trifunovski, it was found that five of Ace Insurance’s agents were employees despite their independent contract arrangement, as they were not conducting their own business, received sales leads and training from Ace Insurance, and were encouraged to behave as though they were part of the Ace Insurance company.

Under the Fair Work Act 2009 (Cth) it is illegal for an employer to misrepresent an employment relationship as an independent contracting arrangement. These ‘sham’ contracting arrangements are often created to avoid paying employee entitlements, and to reduce the legal responsibilities that come with an employment contract.

In addition to being fined for engaging in sham contracting arrangements, businesses may be liable for unpaid superannuation, unpaid workers compensation, PAYG tax, and any unfair dismissal claims from a dismissed worker. Businesses may also be vicariously liable for any negligent acts by workers.

Businesses should be aware of the recent focus on sham contracting by the Fair Work Ombudsman and should consider the following:

  • Carefully review any the contractual arrangements entered into by the business. This may require a review of company structures, working arrangements and remuneration packages.
  • Ensure that recruitment and human resources staff are aware of the ‘sham contracting’ provisions of the Fair Work Act 2009 (Cth). This may require implementing policies and processes to avoid the risks associated with engaging an individual as an independent contractor when they are actually an employee.

If you are in doubt about the effects of the Fair Work Act 2009 (Cth), or would like further information regarding sham contracting, please contact Certus Legal Group.