Industrial relations law in Australia is complex. Too complex some argue, but regardless of your views on that, if you engage workers in Australia, you have an obligation to comply with the law as it stands.

Should you engage your workforce as independent contractors, there are a myriad number of tests that those individuals and their businesses must meet to ensure compliance. There is no single piece of legislation that exists in Australia that defines what constitutes a legal contractor relationship.

Legitimate contracting arrangements, i.e., those that are not in breach of the Fair Work Act provisions for “sham contracting,” can be best tested by applying the Deeming Law provisions of various regulations such as taxation, superannuation, Workers’ compensation and payroll tax.

For more about sham contracting – read Sham contracting and general confusion about whether or not a contractor is an ‘employee’ has hit headlines throughout 2016. What are your thoughts?

Several regulators have what are called “Deeming Laws” to address how that specific regulation will treat workers, regardless of whether the nature of the relationship is employment or contracting. Typically, Deeming Laws mean that even your contracted workforce may be “deemed” as employees for the purpose of that regulation. Such as:

• 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; and
• Building licenses, blue cards, etc.

Besides the sham contracting penalties imposed by the Fair Work Ombudsman – which are $51,000 per contravention (at the time of writing) – you could also be exposed to other contractor obligations, such as:

1. The ATO has powers to look back into unpaid PAYG for 4 years
2. The ATO has powers to look back into unpaid Superannuation right back to 1992
3. The ATO has powers to look back into unpaid Fringe Benefits Tax for 3 years
4. The Office of State Revenue has powers to look back 5 years

So roughly speaking, for a workforce of 10 contractors who you wrongly classified as contractors when they were really employees – earning on average $100k p.a. for the last 5 years – your exposure could cost you:

• PAYG $3.85 million (using highest marginal tax bracket)
• Super $475K (conservatively + interest + penalties)
• Payroll Tax $250K (conservatively + interest + penalties)

As you can see, the consequences of misclassifying your workers are huge. You owe it to yourself and to your workers to be 100% Certain that they are indeed compliantly engaged as independent contractors and will not be deemed employees under closer inspection.

Taking the necessary steps to review your compliance with Fair Work obligations is crucial in setting yourself and your enterprise up for success.

Certica® has provided compliant independent contracting solutions to Australian companies for over 16 years and we pride ourselves on finding solutions for our clients who want the freedom that compliant and fair contracting arrangements provide. If you engage contractors and you have a concern about managing your workforce, please contact us immediately for a no-obligation risk assessment and practical tips to ensure you’re always a step ahead.

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