How will government reforms impact independent contractors?

'The outcome could provide businesses with more clarity'

How will government reforms impact independent contractors?

The Commonwealth Government continues to make changes to the Secure Jobs, Better Pay Act with submissions being sought over the rules of independent contractors and casual workers.

US research suggests that 50% of the workforce will be employed on a freelance basis by 2027, and that growth is three times that of the traditional workforce.

Based on Australian Bureau of Statistics data, around 3.15 million Australians are in contract or freelance style employment arrangements. That’s almost one-third (28%) of the workforce.

Freelance numbers have been trending upwards for many years and have accelerated since the end of COVID restrictions, with people realising that a more sustainable and healthier lifestyle was preferred than the daily corporate grind.

‘Greater protection’ of workers

“Whilst submissions are currently being sought by the Commonwealth Government, it is understood that the government proposal is to provide for greater protection of independent contractors by empowering the Fair Work Commission to set minimum standards and pay rates and deal with disputes over contract terms and termination,” Jo Alilovic, director 3D HR Legal, said. “There is potential for the standards to be set in a way similar to modern awards.”

While issues identified in the gig economy and with contractors working for organisations like Uber and Menulog have been the impetus for this proposal, the Department of Employment and Workplace Relations (DEWR) consultation paper “specifically states the coverage could be made available to all independent contractors – not just those in specified industries,” she said.

Most freelancers negotiate rates for themselves and depending on the industry, there can be unofficial hourly or project rates that are standard. Depending on your experience, and the client, you will charge somewhere between the lower and higher end.

Establishing uniform rates could make it easier for those with less experience to earn better pay — but it might also restrict top earners into accepting less to become more competitive.

Too complex?

“Businesses use independent contractors to avoid the complexities and responsibilities of an employment relationship, and to have increased flexibility and efficiency,” Alilovic said.

“The proposed introduction of minimum standards and oversight by the Fair Work Commission will make contractor relationships more complex and employee-like, significantly reducing the perceived benefits of engaging with contractors.

If coverage extends too far, there is the possibility that the new laws unnecessarily impinge on the ability for business to contract with obvious legitimate contractors such as senior professional consultants, she said.

“On the plus side, the question of who is a contractor and who is an employee is already a vexed and confusing issue for business. There is a possibility that, from an employment law perspective at least, the introduction of these changes will result in less disputes about whether an independent contractor is actually an employee; if the contractors have protections and a clear avenue for raising disputes about their contract terms.”

Dependent upon the submissions and which direction the Commonwealth Government takes, the direction of protection for casual workers and independent contractors, employers could get more clarity on their employment obligations and their payment requirements meaning less disputes.

Independent contractor or employee

It could also enable employers to hire contractors with more certainty and hopefully eliminate unnecessary legal disputes over payment terms and actual payment.

“There is already confusion for businesses when it comes to working out if a person is an independent contractor or an employee - casual or permanent,” Alilovic said. “The issue arises when someone is engaged as an independent contractor but later tries to argue that they are really an employee due to underpayment claims.”

The idea of including a definition of independent contractor in legislation has been previously considered but never implemented, she said, and it constantly comes up now due to gig economy workers.

“With the proposal for at least some independent contractors to be treated as ‘employee-like’, the outcome could provide businesses with more clarity as the contractors who fall within the new coverage may be less likely to try to raise an argument that they are an employee.”

For businesses to protect themselves against any potential claims, Alilovic suggests that employers need to:

  • understand the distinction between an employee and a contractor with regards to employment law
  • ensure they have a clear written agreement setting out terms and conditions that reflect a contractor relationship, not an employment relationship
  • seek accounting/tax advice as to whether the contractor is entitled to superannuation due to the extended definition of employee under superannuation laws
  • determine whether they have any other obligations for the contractor such as whether workers’ compensation laws extend to them.

“Having access to the Fair Work Commission for disputes will make it much more likely that independent contractors will bring claims given the simplicity and low-cost nature of the Fair Work Commission dispute handling processes,” she said.

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