Understanding “Sham Contracting” and how to protect your business AFG Webinar 21-04-11 Richard Breden Partner FCB Workplace Law FACTS FWO v Centennial Financial Services • Centennial Financial Services re-engaged employees, who sold and distributed the company’s financial products, as independent contractors on a commission only remuneration package. • There were no changes in duties performed and no change in the reporting structure or hours they were expected to work. • They were not paid entitlements such as annual leave or superannuation and were required to submit invoices for payment. DECISION • By purporting to re-engage ‘Corporate Associates’ as independent contractors Centennial had breached the Workplace Relations Act s901 prohibition against sham contracting. • HR Manager and Directors were held to be personally liable under s728 Workplace Relations Act. • It was irrelevant that the HR Manager was essentially a ‘typist’ and was unaware of the unlawfulness of the new arrangements. [The WR Act Provisions are similar to those under s357, 358, 359 Fair Work Act] Contractor or Employee? • ‘Corporate Associates’ held to be employees on the basis that Centennial: – Gave them work, retained ownership of any clients they introduced; – Required they attend the office daily between specified hours; – Supervised their finances; and – Required exclusivity. • Other indicia: Centennial provided Corporate Associates with mobile phones, office facilities and business cards, and the Corporate Associates represented themselves as emanations of the Centennial group of companies. Centennial Financial Services Independent Contractor Employee Indicator Employee Independent Contractor Hours of work Generally works standard or set hours Decides what hours to work to complete specific task Degree of Control Performs work under the direction and control of their employer on an ongoing basis High level of control in how work is done Expectation of Work Has an ongoing expectation of work Usually engage for specific task Risk Bears no financial risk Bears the risk for making profit/loss on each task. Indicator Employee Independent Contractor Superannuation Entitled to have super contributions paid Pays their own super Tools and Equipment Provided by the employer, or tool allowance provided. Use their own tools and equipment Tax Income tax deducted by employer Pays their own GST and tax (NB: 80% Rule) Method of Payment Paid regularly, e.g. fortnightly, monthly Has ABN and submits an invoice when work is completed Leave Entitled to receive paid leave or loading in lieu of leave (casuals) No entitlement to paid leave Shifting Obligations Direct Employment BUSINESS CO • Pay Worker • Perform Work for Business Co • Contract Obligations • Be directed by Business Co Ms. Worker Employment • • • • • • • • • Pay Worker OHS Obligations Contract Obligations Liability for work Unfair Dismissal Exposure Industrial Entitlements Workers Compensation Superannuation Tax Administration Shifting Obligations Direct Independent Contracting BUSINESS CO • • • • • • • Pay Worker Perform Work for Business Co Contract Obligations Be directed by Business Co Extras if incorporated Ms. Worker Tax Administration Extras if incorporated Employment • • • • OHS Obligations Contract Obligations Liability for work Unfair Contracts Exposure FWA Sham Contracting Provisions S357 - Misrepresenting employment as independent contracting arrangement S358 - Dismissing to engage as independent contractor: • Is the employee doing the same or substantially the same work? S359 - Misrepresentation to engage as independent contractor: Making a false statement to induce employer to work under an independent contracting arrangement. RISKS PENALTIES UNANTICIPATED LIABILITY PERSONAL LIABILITY • • • • WORKERS COMPENSATION SUPERANNUATION PAYROLL TAX SHAM CONTRACTING - $33,000 per contravention • PAYROLL TAX • SUPERANNUATION • SHAM CONTRACTING FW PROVISIONS RISKS COMMON LAW COMPENSATION OR UNANTICIPATED COSTS PREMIUM EXPOSURE • Unanticipated liability • Exposure to employee remedies e.g. unfair dismissal • Increased vicarious liability • Sham Contracting Provisions • UNFAIR CONTRACT • WORKERS COMPENSATION Introducing enableHR - AFG Business Size* Annual Fee (excl GST) 1 – 10 $495 11 - 24 $950 25 - 50 $1,950 *Includes employees and contractors • Partnered with AFG to meet the new HR requirements under NCCP • NCCP compliant HR system • Helps manage contractors and employees under NCCP and the Fair Work Act 2009 • Supports legitimacy of employment or contractor relationship • www.enablehr.com.au/afg Introducing enableHR - AFG MORE INFORMATION: www.enablehr.com.au/afg (02) 9922 5188 PURCHASE: Click on “SIGN UP” on AFG Homppage COST AGAIN: $495 (1–10), $950 (11-25), $1,950 (26-50) “The introduction of the NCCP and the Fair Work Act is frustrating due to the distraction it causes to our core business. enableHR, in conjunction with AFG, has taken the burden off our hands through the implementation of a cost efficient, time efficient, simple to use application The protection enableHR provides and the administration and cost it removes makes it worth its weight in gold” Simon Orbell – Smart Move