Effective 26 August 2024, changes to the definition of employment and contractor rights may result in some working relationships being characterised differently and the removal of unfair contract terms.
Definition of Employment and Worker Engagement
As a result of the Closing Loopholes legislation, on 26 August 2024 there will be a new definition of employee and employer under the Fair Work Act.
From 26 August 2024, determining if a worker is an employee or independent contractor will be based on the actual nature of the relationship between the parties. Accordingly, a multi-factor test will be used to determine the true working relationship. Factors in the test will include (and can vary from case to case):
- the extent of control of, or the right to control, the worker
- whether the worker is provided with tools and equipment
- whether uniforms were provided and/or required by the principal
- whether the worker is permitted to delegate or subcontract work
- the remuneration structure – specifically, whether the worker receives payment of a periodic wage or salary or compensation by reference to the completion of a task or project
- whether the worker is entitled to paid annual leave or sick leave; and
- the express terms of the contract between the parties.
Unfair Terms in Contracts
Contractors can now approach the Fair Work Commission if they believe their contract includes unfair terms. The Fair Work Commission can:
- Determine if a contract term is unfair, considering various factors
- Set aside, amend, or vary the contract if it contains unfair terms.
Contractors earning above a yet to be determined ‘high-income threshold’ will not be able to seek an unfair contract remedy with the Commission however they can seek a court review.
Sham Contracting
Sham contracting, where an employer falsely represents an employee relationship as an independent contractor arrangement, is prohibited under the Fair Work Act. Employers must review and correct any existing arrangements to ensure compliance.
What should employers do?
- Review Worker Classifications: Employers should review current working relationships to ensure they align with the updated criteria. The multi-factor test, as described above, should be used to accurately classify workers as employees or contractors.
- Assess and Review Contracts: Ensure current contracts accurately reflect the true nature of the working relationship. Make adjustments if there’s a mismatch between contract terms and practical reality.
- Avoid Sham Contracting: Ensure all employment arrangements are correctly classified and transparent. Misrepresenting an employee as an independent contractor is prohibited, so reviewing existing arrangements and updating them if they have been misrepresented, is crucial to comply with the new legislation.
Need assistance?
At Allan Hall HR, we have a team of experienced HR consultants. Please call us on 1300 916 764 or contact us here to discuss any questions you may have in regard to independent contractor changes, including reviewing contracts and the arrangements in place for independent contractors. To learn more about our services, please click here.