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Using independent contractors: A smarter way to work


The independent contractors (IC) segment continues to grow in Australia, with approximately 1.15 million people working outside the traditional employment model. Right across the economy, independent contractors are prominent and vital to productivity in professional, technical, trades and operator streams. 

In Australia almost every business has engaged an IC at one point or another; however, it is imperative the engagement is administered in accordance with the law. Freelance Global has been a specialist in this field since 1991, with a major part of its business being the formal audit and assessment of existing independent contractor arrangements to ensure they are genuine and properly structured. 

Anthony Kelson, CEO at Freelance Global explains that their findings indicate more than 70% of private and public sector organisations’ independent contractor relationships are improperly structured or in breach of tax or industrial law. A small percentage is able to demonstrate they are compliant with WH&S legislation.

It is therefore imperative a business understands the difference between hiring a full time employee and engaging an IC; the IC must also be aware of their rights and obligations. 

According to Kelson, the common mistakes made by a business when engaging an IC occurs at engagement whereby an extensive collection of regulatory and compliance frameworks need to be addressed, when budgets are the focus and risk and compliance is overlooked, and when a business races to get a job and often WH&S is not addressed thoroughly.  

Kelson says there are several key variables that need to be assessed in order to determine the status of an IC versus an employee. Merely stating that the relationship is one of contractor to principal is not sufficient, even in cases where the IC is incorporated. 

Where businesses go wrong is they more often than not do not conduct a proper assessment of the IC’s engagement. Industry sectors that are project intensive such as mining, construction and IT tend to have a high proportion of ICs. Getting the management of ICs wrong can be very costly.

In January 2013, the Full Federal Court handed down its decision in the Ace Insurance Appeal. Ace had engaged the services of five agents as ICs and paid each solely on a commission basis. However the Court found the agents were in fact employees and therefore entitled to traditional employee benefits such as superannuation, leave and termination payments. In addition, the employer was likely to be liable for unpaid statutory liabilities such as payroll tax and workers’ compensation and associated penalties. 

In some cases, the total liabilities for mistakes of this nature can exceed $250k per employee. In this particular case, the court determined the payment of accrued leave entitlements should arise at the termination of employment. This resulted in an amount of $325,671 being awarded. Ace Insurance also had to pay a penalty of $10,000.

Freelance’s core business is the elimination of risks associated with the deployment of ICs. 

Kelson says they have in-house expertise in taxation, employment and industrial law, and workplace health and safety. Together with their systems, technology and administration teams, Freelance can offer clients a simple solution that enables them to access all of the benefits of ICs while effectively managing the risks. 

Freelance Global’s integrated solution will be tailored to the client’s requirements and will address compliance, engagement, reporting and work health and safety. The effective deployment of ICs offers flexibility and productivity; in particular, the ability to link pay directly to performance leads to increased output.

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