Relationships with your Personnel - Getting off on the Right Foot

Posted by Luke Mitchell on 08 June 2016
Relationships with your Personnel - Getting off on the Right Foot

You can’t do it all. Right? Getting others to help you within your business is a key to the success of any business. But the when, how and why of engaging others to work within a business is often the source of great time, effort and stress. Do you use other larger businesses as ad hoc suppliers, do you outsource the work?  What about independent contractors who are more readily available and know the ins and out of your business and then of course there is the option of employing people.

They say you are only as good as the people you surround yourself with, but good help is hard to find so on and so forth.... So when you find something that works for your business, people are often quick to jump into securing the relationship.

However, over the years we have seen many businesses run into trouble as a result of rushing into things without properly considering the details of the relationship that is being established. In a recent blog we looked at the importance of knowing the terms of engagement with your suppliers. It is equally important that the terms of engagement of your personnel are clearly expressed and cover the necessary issues to protect you as best as possible.

One of the areas we are seeing which is continuing to expose business operators to huge risks is being ignorant as to the factors that are considered in determining whether they have engaged a true independent contractor or whether they have in fact engaged an employee. 

The employee vs contractor question has become so common that the Fair Work Act 2009 contains provisions that explicitly outlaw "sham" contracting arrangements. 

While a written contractor's agreement is better than nothing, the existence of a written agreement of itself does not conclusively prove the true status of the relationship of the parties that have entered into it.

As a guide, the following matters are among those taken into account when determining whether an individual is an employee or an independent contractor:           

Employee

Contractor

The individual provides a Tax File Number when commencing employment.

The party providing the services has their own ABN and contracts to you for work quoted upon.

The individual works full time for the employer business and is paid solely by that employer.

The party providing the services is free to contract with and provide services to any party.

The individual cannot pay another party to undertake their work.

The party providing the services has the ability to subcontract or delegate another party to provide services.

The individual uses tools provided by the employer or is reimbursed or paid an allowance in the event that they are required to use their own tools.

The party providing the services provides their own equipment, tools and other assets required to deliver the services.

The individual is covered by insurance policies paid by their employer.

The party providing the services takes out their own insurance policies and is legally responsible for their work.

The individual carries out work as the employer directs.

The party providing the services provides services in accordance with the terms of the relevant contract but in the manner that they determine, they can refuse to provide additional services and they work independently for the benefit of their own business.

Getting it wrong can have very serious consequences for a business. Businesses can be faced with claims in respect of underpayment of wages, unpaid leave entitlements, workers compensation issues and the ATO can pursue the payment of PAYG withholding tax, superannuation, interest and penalties.

It is essential that businesses have a clear personnel engagement strategy in place. Don't assume that just because an individual is referred to as a "contractor" in an agreement that that makes it so. It is essential that a proper assessment is done as to whether or not the relevant services that a business is contracting to receive can truly be provided by an independent, arms length third party. Once you have assessed and determined the basis upon which you will engage someone it is critical that an appropriate contract is entered into by the parties.

We specialise in providing clarity and confidence to business operators in their legal relationships with their personnel and third party service providers. If you are concerned that a contractor to your business may not actually be a  true contractor but rather an employee, contact us before it becomes a real problem for your business.

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