With contracting increasing in popularity for both workers and employers, how can HR create contracting relationships that are both value-adding and compliant?
There has been a quiet revolution transforming the make-up of Australia’s workforce over the past decade. Australian Bureau of Statistics fi gures for 2013 indicate that 17.2% of the Australian workforce is selfemployed. This equates to two million persons. And since 2013, independent contractor numbers have surged from 8.5% (986,000) to 11.2% (1,310,000) of the workforce.
With any great change comes uncertainty, and that’s also the case with how employers are engaging with this growing workforce contingent.
David Marriner, CEO of Certica®, says “a maelstrom of regulatory nonsense and red tape” will not hamper the growth of this labour force contingent; nor will different and oftencontradictory viewpoints from regulators on how independent contractors should be managed. However, this uncertainty may cause already-busy HR professionals to pause before advising their organisations that engaging contractors is the way forward.
Certica® is on mission to change this perception. The company aims to champion the right of businesses and individuals to engage in compliant and mutually beneficial contracting arrangements. The ultimate goal is to allow HR to focus on high-level strategy, while Certica® manages the day-to-day operations.
“We partner with businesses and individuals to provide certainty to all parties that the obligations of the arrangement are being met,” says Marriner. “With us taking care of things like taxes, insurances, employment and contracting laws, registrations, lodgements, superannuation, and so on, being in business becomes simpler and more rewarding, and our clients can focus on what they do best – growing their own base of happy customers.”
A global trend
Australia is not alone in this shift towards more contingent workers. There is a worldwide trend towards freelancing and outsourcing specific functions to microenterprises, and the growth of web platforms has helped drive this growth. “Talent can now be sourced and engaged via the internet from any location in the world,” Marriner says.
However, it appears that Australia’s rigid workplace relations legislation has not kept pace. Marriner feels the difference in global labour rates presents an arbitrage opportunity with clear incentives to engage talent outside of Australia.
“We’ve entered the era where individuals can now participate in a global economy, without the need for support of a multinational corporate employer,” he says.
Marriner adds that self-employment will also be a critical driver towards the Prime Minister’s vision of an innovative and entrepreneurial age, “yet Australia’s regulators and labour laws are structured in a way that demonises contracting”.
Indeed, there is an assumption that contracting is used by business only to avoid liabilities or to disadvantage workers. “This is not true,” says Marriner, who laments that the term ‘sham contracting’ has been used by regulators as a pejorative label to describe all contracting arrangements, “with seemingly little effort being placed on using the term in its truest legal sense”.
“The trend to present an ideological bias against contracting implies that these arrangements are somehow less legitimate than direct employment, but this is simply not the case,” he says.
Sham contracting in focus
Under the sham contracting provisions of the Fair Work Act 2009, an employer cannot:
- misrepresent an employment relationship or a proposed employment arrangement as an independent contracting arrangement
- dismiss or threaten to dismiss an employee for the purpose of engaging them as an independent contractor
- make a knowingly false statement to persuade or influence an employee to become an independent contractor
“We do not tolerate sham contracting, and support strong laws and penalties against businesses and individuals that evade their legal obligations,” Marriner says. “It’s critical that all commentary on the topic takes care to distinguish the difference between sham contracting – which is a deliberate or reckless misrepresentation of an employment arrangement as a contractor arrangement – and the very legitimate term of ‘independent contracting’.”
When engaging contract labour, it is essential to ensure that contractors meet strict compliance and conduct standards as required by regulators. A failure to uphold high compliance places the engager of contract labour at risk of employment claims, taxation and superannuation liabilities, workplace health and safety breaches and insurance claims.
THE FLEXIBLE OPTION
Below the line compliance
Today’s national average tenure in a job is 3.3 years. This means that a vast majority of workers are seeking flexibility and transferable skills and are reacting to market demand and supply for work. Marriner says it’s important that HR professionals examine the make-up of their workforce to ensure that outcomes can be delivered dynamically and without the rigidity or constraints of traditional employment models. “We know first-hand, businesses large, small, publicly traded or family owned can start developing a diverse mix of independent contracting and employees any time of their enterprise journey. Basing your business growth on whether you can afford an extra employee under a fixed employment structure is unnecessary and indeed stifling.”
Much of the mainstream commentary on high-profi le legal cases involving independent contractors to date has focused on what Certica® calls ‘above the line’ engagement practices, centring on the many interpretations of the Fair Work Act (2009). While these issues are all critical in determining the true nature of a contracting relationship, Marriner says they are just the tip of the iceberg. “It is absolutely imperative that we spend time addressing the ‘below the line’ deeming laws that govern responsible contracting,” he adds.
Below the line areas of concern include:
- individual remittance of workers’ personal income tax
- provisions for individual superannuation
- workers’ compensation for deemed workers
- remittance of payroll tax for deemed workers
- adequate individual insurance coverage
- building licences, blue cards, etc.
“By only considering the ‘above the line’ issues, we are neglecting to address the unfairness created by abusers of ‘below the line’ compliance, the effect of which impacts all of us,” Marriner says. “We all use hospitals, schools, roads and transport, so workers – whether they are contractors or employees – should equally contribute to their responsibilities for taxation, superannuation, etc, and ensure that they are adequately insured to cover the risks they might incur for themselves or others.”
Ignoring these issues is tantamount to endorsing contracting as an avoidance scheme, he adds. “We believe that contracting is a right of choice available to businesses and individuals alike; however, compliant contracting means being responsible and meeting all of your statutory obligations.”
SUCCESSFUL CONTRACTOR ENGAGEMENT
David Marriner provides his tips for engaging contractors ‘in totality’.
• Practise what you preach: if your contract allows the contractors to work for other clients, or delegate work and accept/reject work as it suits their business requirements, make sure that you allow this to happen in practice. All too often, we fi nd that the agreement doesn’t marry up with the operation.
• Review your engagement regularly: industrial relations
is an ever-changing landscape. Ensure that you have a mechanism in place to capture any changes to deeming laws, the treatment of contractor payments/expenses, and that you regularly apply those changes within your business.
• Get advice: all too often, businesses rely on their accountant or commercial lawyer for IR advice, yet this area of expertise is so unique and complex that you truly do need to seek specialist advice.
• Don’t dress it up: make sure that the offers of work you are making are clearly communicated up front, and ensure that workers are aware of your intent to enter into a contracting arrangement before they start work.
Many of these obligations extend to third-party partners such as recruitment
agencies. “Responsible contracting starts before an offer has even been made,” Marriner says. “Any business that seeks to engage a contractor to provide services must ensure that all parties involved in procurement have sufficient knowledge of contracting language and obligations. Transparency and intent are paramount.”
This includes job advertising. Any contractor procurement advertising must be clear and unambiguous as to the employer’s intentions in engaging contractors. “Far too often recruiters ‘dress up’ the advert to increase applicant responses; however, this may expose your business to risks of sham contracting due to a misrepresentation of the offer,” Marriner says. “Furthermore, you are less likely to attract an entrepreneurial individual with advertising that doesn’t champion the benefits of flexibility and control which contractors seek.”
Marriner adds that contracting is all about the ability of both parties to accept or reject certain conditions of employment, and both parties should have bargaining power in the arrangement. Finally, HR should ensure that contractors are onboarded in a consistent and compliant manner.
The days of the contractor sitting in the corner who no one talks to should be over.
“Just like you would induct any new employees, HR professionals should absolutely take the time to facilitate a contractor induction to your business culture,” Marriner says. “Using a contractor does not mean that unique organisational culture cannot be lived and breathed. On the contrary, contractors allow businesses to see the ‘outside in’. Treat the contractor like a person who is needed and cherished by the organisation – that’s because the contractor is needed and cherished.”
Certica® makes contracting simple and compliant for both contractors and the businesses that engage their services. With headquarters in Brisbane, Australia, Certica® is considered the industry leader in contractor compliance and management, and continues to deliver Certainty to 100% of its clients, keeping them Contractor Ready™.