Tread carefully when engaging Contractors

Posted on 10 January 2012

A recent investigation conducted by the office of the Fair Work Ombudsman has revealed that many employers have been misclassifying employees and engaging in sham contracts.

A majority of the errors found were that employers were engaging workers as contractors when they should have been classified as employees. Errors like this can result in a breach of workplace laws particularly of the National Employment Standards, terms of a Modern Award or an Enterprise Agreement.

From the investigation it was clear that Employers were acting on incorrect advice sometimes from their accountants and the Employer had given little thought to the law. The result left these employers exposed to fines from the Fair Work Ombudsman as well as back–payments of entitlements to be made to these employees who were not contractors.

The investigation of 91 business revealed that 23 per cent had misclassified employees as contractors. Employers should really think about the “contractors” they engage and assess if they are in fact contractors and what makes a true contractor. Ask yourself a few questions such as:

  1. Does the person only work for my business?
  2. Do I require the person to where a uniform?
  3. Do I supply the person with all of the equipment they need to get the job done?
  4. Is the person covered by my insurance policies?
  5. Is the person required work hours that are determined by me?
  6. Is the person required to take breaks as requested by me?
  7. Do I have ultimate control of how, when and where they work?

If you answered yes to most of the questions above then you could be engaging an employee and not a contractor and could be operating a “sham contract”. You should regularly review the nature of the relationship and assess if it is an employment relationship which requires an update of your agreement with the individual and review of the pay and conditions provided to the person.

We suggest that you contact us prior to engaging workers if you are unsure how they should be classified so as to avoid contravening any workplace laws.

If you need assistance with an employment law matter, please contact us