(a) No
(b) No
(c) No(a) No
(b) No
(c) NoIn December 2020 the Australian Senate established a Select Committee on Job Security to inquire into and report on the impact of insecure or precarious employment on economy, wages, social cohesion and workplace rights and conditions. It recommended that the Fair Work Act 2009 (Cth) ("FW Act") — being the principal item of legislation governing employment relationships in Australia — be amended to ensure that all workers have the protections of the Act and access to labor standards, minimum wages and conditions established under the Act, so that these rights accrue to dependent and on-demand contracting, preventing those arrangements from being disguised as independent contracting.
On 21 May 2022, the Federal Election was held and a new Labor government was elected. The new government has indicated that job security is an important priority and flagged plans to adopt a number of recommendations from the Select Committee on Job Security. This includes introducing reforms to:
- Ensure that labor hire workers receive the same pay and entitlements as direct employees
- Introduce a national labor hire licensing scheme, to exist alongside existing labor hire licensing schemes in various States
- Make job security an objective of the Fair Work Commission, so that it becomes a core focus of its decisions
No changes to the above effect have been legislated.
In addition, with the rise in digital platform services, we are seeing an increasing global trend in case law and legislation aimed at protecting platform workers' labor rights. For more insight on these developments, along with other employment law updates, click here.
In December 2022, the ATO issued Draft Taxation Ruling TR 2022/D3 ("Draft TR 2022/D3") and the Draft Practical Compliance Guideline PCG 2022/D5 ("Draft PCG 2022/D5").
Draft TR 2022/D3 explains when an individual is an 'employee' in relation to sections 12-35 of Schedule 1 of the Taxation Administration Act 1953. It retains the position that the term 'employee' is not defined and so takes on its ordinary meaning, and is a question of fact. Here, the question of fact requires an objective assessment of the totality of the relationship between the parties, considering only the legal rights and obligations which constitute the relationship.
The scope and binding nature of Draft TR 2022/D3 is limited to the purposes of the Pay-As-You-Go withholding rules which impose an obligation to withhold an amount from payments such as salary or wages paid to an employee. The ruling does not cover other payments such as to directors, office holders, labor-hire payments and alienated personal services income (PSI).
Draft PCG 2022/D5 was issued in conjunction with Draft TR 2022/D3 to assist taxpayers in assessing their risk rating according to which the ATO allocates its compliance resources. The guideline contains a risk framework indicating the ATO's compliance approach to arrangements involving workers and their 'engaging entities.' It covers federal tax and superannuation obligations administered by the ATO but does not cover payroll tax, workers’ insurance, the Fair Work Act 2009 and the income tax affairs of a worker (such as their eligibility to claim deductions or business concessions, or the potential application of the PSI rules).
The guideline outlines different obligations and consequences of a worker's classification in regard to a variety of tax and superannuation issues. It also establishes four zones ranging from very low risk, low risk, medium risk, to high risk and explains the extent of the ATO's engagement in respect of each zone.
With the rise in digital platform services, we are seeing an increasing global trend in case law and legislation aimed at protecting platform workers' labor rights. For more insight on these developments, along with other employment law updates, click here.
Where a worker is found to be an employee, they will be entitled to the greater rights prescribed by the FW Act. If the worker's employment would be covered by an industrial instrument (such as a modern award or enterprise agreement), they will also be entitled to benefits under these instruments.
The FW Act imposes minimum terms and conditions of employment via the National Employment Standards (NES), including in relation to hour of work, leave, notice and redundancy benefits. It also provides additional rights and protections in relation to dismissal and fair treatment.
Breach of the NES (or a modern award or enterprise agreement) results in a penalty of up to AUD 82,500 per breach (plus penalties of up to AUD 16,500 for any individuals who are accessories to the breach). Insofar as there has been an underpayment to the worker, the worker will also be entitled to recover the underpayment.
Employees also need to be covered by the principal's workers compensation insurance policies, which will result in higher premiums.
Accordingly, misclassification will carry higher costs for the employer, potential reputational risk, and more restrictions on managing the relationship.
Tax penalty up to an amount equal to the amount that should have been withheld or paid for failure to withhold or remit PAYG withholdings
Failure to correctly pay state payroll taxes constitutes a tax default, and the employer may be subject to penalty tax and interest for any shortfall on any payroll tax payments.
SGC has three components:
- Superannuation guarantee shortfall (i.e., super calculated on salary and wages and/or any choice liability)
- Nominal interest (10% per annum)
- An administration fee of AUD 20 per employee, per quarter
There can also be additional penalties in relation to superannuation obligations, including:
- Late lodgment or failure to provide an SGC statement – up to 200% of the SGC
- False or misleading statement in relation to SGC – up to 75% of the shortfall
- Arrangements to avoid superannuation guarantee obligations – penalty of charge avoided plus additional penalty
Yes, if employees are seen to be facilitating tax evasion in relation to contingent workers, the company could be liable for corporate criminal offenses.
Company directors may be liable for misclassification of employees as contingent workers as they are legally responsible for their company meeting its PAYG withholding and super obligations. The director of a company that fails to meet a PAYG withholding obligation in full by the due date automatically becomes personally liable for a penalty equal to the unpaid amount.
The main employment law risk is misclassification.
Determining whether a worker is an employee traditionally involved a multifactorial approach looking at the totality of the relationship. Among the factors that the courts would consider included the ability to exercise control over the manner in which the work is performed, whether the worker has a right to delegate, whether the worker has a right to perform work for others, whether the worker is able to represent themselves as part of the principal's business (e.g., email sign-off, business cards), and the degree to which the worker is enmeshed in the principal's business (e.g., whether they are assigned an internal position or title, whether they have supervisory duties, etc.), with each case decided on its own circumstances.
However, recent case law indicates a departure from this historical approach. Specifically, the case law indicates an increased focus on the terms of the written employment contract - rather than the subsequent conduct of the parties - in considering the nature of the relationship (i.e., whether an individual should be properly classified as an employee or a contractor).
While the new case law does not permit sham contracting (i.e., labelling a person as a contractor when they are clearly an employee), it does make it clear that courts will have much greater regard to the terms of the contract itself rather than the subsequent conduct of the parties.
The main tax risk is a risk of misclassification. If the Australian Taxation Office (ATO) or State Revenue Office finds that an individual is an employee, this will lead to liability for:
- Failure to withhold Pay-As-You-Go (PAYG) from worker payments
- Failure to make superannuation contributions
- State payroll tax for employees and individual contractors (unless an exemption is available)
An employer (including a deemed employer who engages a person principally for labor) can be subject to a superannuation guarantee charge (SGC) if it does not make contributions to the worker's complying superannuation fund. As of 1 July 2023, the rate for super guarantee is 11% of ordinary time earnings.
The main employment law risk is misclassification.
Determining whether a worker is an employee traditionally involved a multifactorial approach looking at the totality of the relationship. Among the factors that the courts would consider included the ability to exercise control over the manner in which the work is performed, whether the worker has a right to delegate, whether the worker has a right to perform work for others, whether the worker is able to represent themselves as part of the principal's business (e.g., email sign-off, business cards), and the degree to which the worker is enmeshed in the principal's business (e.g., whether they are assigned an internal position or title, whether they have supervisory duties, etc.), with each case decided on its own circumstances.
However, recent case law indicates a departure from this historical approach. Specifically, the case law indicates an increased focus on the terms of the written employment contract - rather than the subsequent conduct of the parties - in considering the nature of the relationship (i.e., whether an individual should be properly classified as an employee or a contractor).
While the new case law does not permit sham contracting (i.e., labelling a person as a contractor when they are clearly an employee), it does make it clear that courts will have much greater regard to the terms of the contract itself rather than the subsequent conduct of the parties.
There is also a reputational risk.
The Australian Taxation Office (ATO) focuses on misclassification of individual contractors and regularly conducts audits. The definition of employee for superannuation purposes also includes individuals engaged principally for their labor. An employer who fails to make superannuation contributions to the required level will be subject to superannuation guarantee charge. There is a range of other penalties that can apply to other instances of noncompliance with superannuation guarantee obligations.
As of June 2022, the ATO is reviewing its guidance on who is an employee for superannuation purposes, in light of the recent case law referenced above.