Fair Work Ombudsman warns on 'accessorial liability'

The August newsletter from the Fair Work Ombudsman (FWO) draws attention to the issue of 'accessorial liability' under the Fair Work Act.

The FWO points out that they are prosecuting an increasing number of cases against parties who are alleged to have been 'involved' in a contravention of the act, even though they are not the employer.

The FWO draws attention to section 550 of the Fair Work Act which states:

Involvement in contravention treated in same way as actual contravention
(1) A person who is involved in a contravention of a civil remedy provision is taken to have contravened that provision.
(2) A person is involved in a contravention of a civil remedy provision if, and only if, the person:
(a)  has aided, abetted, counselled or procured the contravention; or
(b)  has induced the contravention, whether by threats or promises or otherwise; or(c)  has been in any way, by act or omission, directly or indirectly, knowingly concerned in or party to the contravention; or
(d)  has conspired with others to effect the contravention.

In explaining their view of what this means for individuals, the FWO states:

Anyone who is found to be involved in a contravention of the Act can be personally liable for compensating employees and paying penalties imposed by the court. We have used this provision to hold company directors personally accountable for the actions of their companies. This effectively means that liquidating a company is no guarantee of avoiding the consequences of non-compliance with the Act.
But section 550 can extend to anyone involved in a contravention. This can include human resources and payroll officers, line managers, accountants and advisors.

The FWO also points out that there are broad implications for business that use 'outsourcing, franchise arrangements or complex supply chains', stating that, 'companies cannot outsource their non-compliance. For example if one company contracts another company to supply cleaning staff; and those cleaners are underpaid: both companies may be held accountable by a court.'

The FWO concedes that the 'full scope of section 550 in these types of arrangements has not been settled by the courts', but it seems clear that the FWO is determined to take action where it believes that a third party is involved in a contravention of the Act.

The FWO advises individuals, such as management teams, consultants and other advisers to ensure that they are aware of the applicable rules and follow them. Any advice given should be consistent with the Fair Work Act.

For companies involved in outsourcing, the FWO provides some resources to assist in reviewing compliance, including:

Is a worker an employee or contractor? These resources from the ATO can help you figure it out.

IMAGE: ANDREY POPOV / SHUTTERSTOCK.COM

IMAGE: ANDREY POPOV / SHUTTERSTOCK.COM

It can often be difficult to determine whether someone working for your business is an employee or an independent contractor. 

A common misconception is that if a worker has an ABN and invoices you for their work, then they must be an independent contractor. In fact, the Tax Office and other bodies such as the Fair Work Commission will look at a whole range of factors when deciding if someone is an employee or a contractor. An invoice is only one factor, and is not decisive on its own.

The implications of getting this wrong can be serious - including having to pay additional tax and/or back-pay employee entitlements including leave and superannuation. So, it's important to be certain about the arrangements you have in place.

The Australian Tax Office has some useful resources, available free of charge, that can help small businesses figure out the correct working relationship. They are:

Online employee/contractor decision tool.  This involves an online questionnaire, and provides you with a report that outlines whether your worker is an employee or contractor for tax and super purposes, and details any tax and super obligations you need to meet. The ATO states on its website that:

Provided your responses accurately reflect the working arrangement, you can rely on the result provided by the tool. It is a record of your genuine attempt to understand your obligations for your worker and would be considered if we review your working arrangement in the future.

The online decision tool is on the ATO website at https://www.ato.gov.au/Calculators-and-tools/Employee-or-contractor/?2016SBN_Invoice

Employee/Contractor Webinar. These are one-hour webinars that cover a range of issues including:

  • the differences between employees and contractors
  • common myths about contracting
  • how to make the right decision about the status of your workers
  • what the tax and super consequences are for each.

The webinar is being held at the following times:

  • Tuesday, 28 June 2016 4.00pm-5.00pm AEST
  • Wednesday, 20 July 2016 12.00pm-1.00pm AEST
  • Thursday, 11 August 2016 12.00pm-1.00pm AEST.

To register to attend one of the webinars, visit the ATO website at https://www.ato.gov.au/General/Webinars/Employee-or-contractor-webinar/?2016SBN_Invoice.

 

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Employee or Independent Contractor? How to decide.

Recent developments in government policy and regulation have tightened up the rules relating to independent contractors.

It is most important for businesses to be able to correctly identify whether people providing services for them are independent contractors or employees. Failing to get this right can mean incurring significant costs including a requirement to backpay superannuation and other entitlements.

The Fair Work Ombudsman (FWO) has provided some guidance to assist in understanding the difference between an independent contractor and employee.

While FWO's views do not amount to legal advice, they are important to consider as FWO will often be the government agency that investigates complaints related to disputes about employment versus independent contracting.

FWO makes the important point that there is no single factor that will decide whether a person is an employee or independent contractor. A number of factors will be relevant, including:

  • Degree of control over how work is performed
  • Hours of work
  • Expectation of work
  • Risk
  • Superannuation
  • Tools and equipment
  • Tax
  • Method of payment
  • Leave

How each of these factors influence the decision about whether someone is an employee or independent contractor

Degree of control over how work is performed. An employee performs work under the direction and control of their employer, while an independent contractor has a high level of control in how the work is done.

Hours of work. An employee generally works standard or agreed hours, while an independent contractor decides what hours are needed to complete the specific task.

Expectation of work. An employee usually has an ongoing expectation of work (except where specified, such as for fixed-term and casual employees), while an independent contractor is usually engaged for a specific outcome.

Risk. An employee bears no financial risk, while an independent contractor bears the financial risk associated with performing their contracted services. An independent contractor will usually be responsible for rectifying any errors or faults, as well as any liability for injury sustained while performing the task. Independent contractors generally have their own insurance policies.

Superannuation. An employee is entitled to have superannuation contributions paid into a nominated superannuation fund by their employer, while an independent contractor is generally responsible for their own superannuation obligations.

Tools and equipment. Employees' tools and equipment are generally provided by the employer, while an independent contractor usually provides their own tools and equipment.

Tax. An employee has income tax deducted by their employer, while an independent contractor is responsible for paying their own income tax and GST.

Method of payment. An employee is paid regularly through a payroll system, while an independent contractor will submit an invoice for work completed or be paid at the end of the contract or project.

Leave. An employee is entitled to receive paid leave or receive a loading in lieu of leave entitlements, while an independent contractor is not entitled to paid leave.

A copy of the Fair Work Ombudsman's fact sheet is available for download from the FWO Website.