A HR toolkit for managing contractors

As the make-up of Australia’s workforce evolves over the next decade, one of the major challenges facing HR professionals will be the careful management of contractors. Teresa Russell gets some timely HR and legal opinion from a few experienced campaigners

As the make-up of Australias workforce evolves over the next decade, one of the major challenges facing HR professionals will be the careful management of contractors. Teresa Russell gets some timely HR and legal opinion from a few experienced campaigners

It might be a remuneration review, or a project marketing team, or an IT installation. It might be something you haven’t even thought you’d need to consider – like security guards. If you haven’t managed contractors to date, you probably will in the next ten years, as more companies try to manage labour costs while striving for greater workforce flexibility.

Regardless of the type of individual or team your company employs on a contract basis, or the reason for which they have been employed, there are several guiding principles that should be considered by any employing organisation.

When is a contractor is a not contractor?

The answer to this vexatious question has determined the outcomes of many court cases from state industrial relations commissions to the High Court of Australia. Given that employing a person as a contractor can be up to 30 per cent cheaper than taking them on as a full time employee, the temptation exists to hire a contractor, rather than an employee. However, as University of Sydney professor of industrial law Ron McCallum explains, the law has seven tests to determine the difference. They are:

• The right to control

• Ownership of tools

• Ability to make either a profit or a loss

• Payment and provision of annual leave

• Power to delegate a task

• Payment of tax

• Statement in a contract of employment

Thousand of pages have been written about the differences between employees and contractors. “In the 35 years I’ve been reading case law in Australia, I can generalise that in the case of injury, courts lean towards the disputed relationship being that of employer and employee, but in other cases, they tend to lean towards it being a contractor,” McCallum says. He cites contrasting outcomes from two different courts. The High Court of Australia said bike couriers were employees, despite the existence of a contract saying they were independent contractors. The court said that because the employer provided uniforms and had control over their movements, they were actually employees. However, the NSW Supreme Court held that a car courier was, in fact, a contractor, because he had provided his own car, which was deemed to be a significant investment in the ownership of the tools of trade.

However, Ken Tapfield, national HR manager for Mission Australia, says that his organisation has a policy of never employing past employees as contractors, unless there has been a three month break in between. “We hire contract labour because we can’t get that skill in a full time employee and we are also very sensitive to not confront the labour agreements we have through AWAs,” he says.

Managing the vendors

Specialist vendors supply the majority of contractors engaged by many companies. Diane Grant, Telstra’s IT sourcing vendor manager, is responsible for managing the contracts of around 1,000 IT contractors providing services to the company. Telstra currently has four vendors referred to as the approved supplier panel. With contracts awarded for 2+1 years, each successful tenderer is required to appoint an account manager who “must be able to meet and discuss as required (any issues about specific contractors) as part of the supplier arrangement” says Grant.

“We make sure we keep our contractors aware of their obligations to manage their employees working at Telstra. Our vendors manage induction, timesheets, agreed timelines for completing projects, compliance with EEO, privacy and OHS policies, eyesight and hearing testing and security clearances. The vendor also does performance evaluations for the Telstra contractors,” she explains.

Grant also holds quarterly meetings with all four approved suppliers in the same room at the same time. “That way, they all know what is happening, they can see they are being treated equally and there is less room for miscommunication,” she states.

Tapfield ensures that all of Mission Australia’s contracts have effective service level agreements with relevant KPIs. “We seek feedback from those using the contract services and have quarterly reviews with the vendors,” he says.

The organisation has preferred supplier agreements that last from 18 months to two years and usually has more than one supplier in order to minimise the impact of any failure to deliver on KPIs. Should a vendor be performing below expectations, they’re given feedback and an opportunity to remedy the situation before termination of its agreement is contemplated.

What should you contract out?

Although it’s cheaper to contract out many tasks and projects, Tapfield recommends caution when deciding what you do put out to contract. “If you contract out a remuneration review, all you are left with at the end is a report, and not the actual knowledge behind it. So there is a potentially large loss of intellectual property,” he says. McCallum advises companies to decide what’s appropriate to contract out and when to employ someone on a full-time basis.

Write a clear contract

It’s vital to have a written contract that clearly defines the responsibilities of each party, according to Tapfield, Grant and McCallum. Leave nothing open to interpretation and cover everything from length of the contract, performance expectations and appraisals, terms and conditions, confidentiality agreements, pay rates, adherence to company policies and procedures, insurance and taxation responsibilities to termination provisions. Have it drafted or approved by a lawyer, preferably one who specialises in industrial law.

Dont forget your employees

“Don’t destroy the industrial relationships you have built up with labour organisations and unions by bringing in contractors,” Tapfield advises. Grant notes the potential for friction between contractors and permanent employees. The vendor’s account manager in the Telstra office will deal with any issues that may arise with its contractors.

Comply with legislation

Dealings with contractors have to comply with relevant state and federal laws. “All employers have a duty of care to employees and contractors under the Occupational Health and Safety Act,” says Tapfield, who has up to 50 contractors delivering training at 250 sites across Australia. Another thing you have to be aware of is GST law. Unless a contractor “provides you with an ABN on its invoice, you are required to withhold an amount from the payment of that invoice at the top marginal rate, plus the Medicare levy (currently a total of 48.5 per cent),” according to the Australian Taxation Office. Other legislation that must be taken into account covers workers compensation, public liability insurance and equal opportunity laws.

“Any contractor who is guilty of sexual harassment can make the organisation that contracts their services at risk of breaking the law through vicarious liability,” Tapfield adds. Mission Australia also has to be aware of government policies and laws relating to work for the dole schemes, as any change in these will effect the training they are required to provide the unemployed and hence, the employment of contractors to deliver that training.

Understand market trends

Before the dot.com bubble burst in the late 1990s, IT contracting was a seller’s market. You had to pay big money to attract staff and pay even more for contractors with specialist training in some IT roles. In the last few years, IT contractors have been doing it tough, as more people trained in certain skills entered the market. However, the tide has changed in the last six months, according to Grant, who has noticed recent difficulty in recruiting contractors with certain IT skills. “You have to really keep in touch with the market in order to understand supply and demand and what the appropriate pricing arrangements should be,” she says. She does this by working closely with Telstra’s approved supplier panel of vendors.

Tapfield says that Mission Australia’s main labour supply issue is the ageing workforce. “There’s a diminishing availability of labour in the marketplace and as a not-for-profit organisation, we can’t pay commercially competitive rates. It’s an on-going struggle,” he says. People often become contractors to minimise taxation and as tax law changes, so can the supply of contractors.

Build positive relationships with vendors

Fostering a free flow of two-way communication is the best way to build a positive relationship with vendors of contract labour. Both Tapfield and Grant describe it as “vital” to the success of the arrangement. Telstra has brought the vendors into their organisation to manage the contractors on a day-to-day basis. “Don’t treat the vendor as a place for sourcing bodies,” warns Grant. Tapfield agrees: “It’s also important to ensure that the values of the supplier organisation are aligned with your own company’s values,” he says.

Recent articles & video

How recruitment agency marketplaces can save time, costs in talent acquisition

Manager made redundant while on leave: Is it unfair?

Oral termination vs. dismissal via email: Which is more effective?

Work health and safety – increased activity means employers need to be proactive

Most Read Articles

FWC finds early notice of end to fixed-term contract amounts to dismissal

SafeWork NSW announces more compliance checks for psychological safety

2 in 3 Australians OK with date change for Australia Day