(a) No.

(b) No.

(c) No.

(a) No.

(b) No.

(c) No.

In 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 the 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 enjoy the protections of this law and access to labor standards, minimum wages and conditions established under it, so that these rights accrue to dependent and on-demand contracting, preventing those arrangements from being disguised as independent contracting.

Subsequent to those discussions, in December 2023 and February 2024, the Labor government passed the Fair Work Legislation Amendment (Closing Loopholes) Act 2023 and the Fair Work Legislation Amendment (Closing Loopholes No. 2) Act 2023, amending the FW Act to implement those recommendations. The relevant changes include the following:

(A) Independent contractors

• There is a new definition of "employee" and "employer" under the FW Act (starting 26 August 2024).
• Changes made to the defense of misrepresenting employment as an independent contractor arrangement (i.e., sham contracting), lowering the threshold from one of "recklessness" to "reasonable belief" (starting 27 February 2024).
• Contractors earning under AUD 175,000 can now apply to the Fair Work Commission (FWC) if they believe their services contract contains an unfair term (starting 26 August 2024).
• The FWC is now able to set fair minimum standards for these "employee-like workers" (i.e., certain gig economy workers) by making minimum standards orders or guidelines. The FWC can also deal with disputes on unfair deactivation of an "employee-like worker" from a digital labor platform (starting 26 August 2024).

(B) Labour hire workers

• There is a new framework under the FW Act for the FWC to make "same job same pay" orders that require a host employer to pay labour hire workers the same minimum rates that a permanent employee would receive under the host employer's enterprise agreement (in certain circumstances) (orders only come into effect from 1 November 2024, but applications can be made in advance).

Further detail is provided about these changes below.

(A) Independent contractor related changes

New definition of "employee" and "employer" in FW Act

This amendment to the law changes the legal test for determining whether an individual worker is an employee (and, therefore, entitled to leave and other entitlements associated with employment) versus an independent contractor.

The Fair Work Legislation Amendment (Closing Loopholes No. 2) Act 2024 (Cth) received royal assent on 26 February 2024. The amendment act inserts a new definition of "employee" and "employer" into the FW Act, revising the test that was established by the high court's decisions in CFMMEU v. Personnel Contracting Pty Ltd [2022] HCA 1 and ZG Operations Australia Pty Ltd v. Jamsek [2022] HCA 2.

By way of context, prior to these decisions, courts would apply a common law "multifactorial" approach to assessing whether an individual was more likely to be an employee versus an independent contractor, based on the facts at play (including the practical reality of the working relationship). However, in these decisions, the high court essentially confined the common law multifactorial approach to an analysis of the contract, provided that the terms of the working relationship had been committed to a comprehensive written agreement.

The impact of these decisions was that, outside of limited exceptions, such as oral agreements or sham contracts, the actual terms of the contract were the primary focus when determining the proper characterization of a working relationship. However, under the amending act, new definitions of "employee" and "employer" (in Section 15AA) have been inserted into the FW Act, restoring the common law multifactorial test.

Under Section 15AA, when determining whether a worker is an employee or an independent contractor, consideration must be given to the following:

• Real substance of the relationship
• Practical reality of the working arrangement
• True nature of the relationship between the individual and the person

In other words, the analysis is no longer confined to the terms of the written contract and considers the whole of the working relationship.

The factors that the courts can consider (now with reference to the practical reality of the working relationship, rather than just the terms of the written contract setting out the arrangement) include 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), with each case decided on its own circumstances.

Workers who earn more than the contractor high income threshold (currently AUD 175,000) can "opt out" of the test under the new definition in Section 15AA by notifying the business they work for. In this way, they can agree that their status as a contractor cannot be challenged under Section 15AA.

The insertion of Section 15AA (new definition of "employee" and "employer") applies only to a consideration of whether a worker is an independent contractor versus an employee under the FW Act. This definition does not apply when assessing whether an individual is an employee or a contractor for the purpose of superannuation and taxation obligations. In these contexts, regard should be paid to TR2023/4 and the accompanying Australian Taxation Office (ATO) guidance.

Changes to sham contracting defense

There have also been changes to the defense used against the charge of misrepresenting employment as an independent contractor arrangement, otherwise known as "sham contracting." Employers found guilty of sham contracting can be subject to significant financial penalties.

The changes relate to the arguments that can be made by an employer to defend themselves against an allegation of sham contracting. Previously, the defense relied on a "recklessness" test, which required the individual making the claim to demonstrate that the employer had knowledge that it was engaging in sham contracting or was otherwise reckless as to whether it was doing so. The threshold has now been lowered to a "reasonableness" test, meaning that employers must now demonstrate that the employer held a reasonable belief that the individual was an independent contractor, not an employee, to make out the defense.

Unfair terms

Independent contractors can now apply to the FWC for orders to review their service contract terms to determine if any terms are unfair. The FWC also has the ability to set aside, amend or vary unfair terms if it finds that any contract terms, such as those related to hours or wages, are unfair.

In carrying out its review of the service agreement, the FWC will consider factors such as the following:

• The relative bargaining power of the parties
• Whether there is significant imbalance in the parties' rights and obligations under the services contract
• Whether the term is reasonably necessary to protect a party's legitimate interests
• Whether the term imposes a harsh, unjust or unreasonable requirement on a party
• Whether the total remuneration under the services contract is less than what an employee performing the same work would receive
• Any other relevant factors

The FWC can review a services agreement for unfair terms in the following circumstances:

• An independent contractor, or a union or employer association representing them, applies to the FWC.
• The independent contractor's annual earnings (and any other amounts) are below the contractor high income threshold (currently AUD 175,000) in the year the application is made.
• The FWC is satisfied that the services contract contains one or more unfair terms that would relate to workplace relations matters if the independent contractor were an employee.

The FWC can only amend unfair terms in a services agreement if the issue pertains to workplace relations matters in an employment relationship (as if the independent contractor were an employee). The following are workplace relations matters:

• Remuneration, allowances, other pay
• Leave entitlements
• Hours of work
• Enforcement or termination of an employment contract
• Making, enforcing, or terminating other agreements that determine terms and conditions of employment
• Industrial action by employees and employers
• Employee/employer disputes
• Other matters dealt with under the FW Act or state/territory laws

Minimum standards for "employee-like workers"

These amendments to the FW Act do the following:

• Establish a new category of worker, "employee-like workers" (i.e., gig economy workers, who would otherwise be independent contractors)
• Empower the FWC to set minimum standards for these employee-like workers
• Provide a framework for consent-based collective agreements setting out minimum terms and conditions for employee-like workers
• Protect employee-like workers from unfair deactivation by digital labor platform operators

These amendments do not apply to gig economy workers who are genuine employees, or who are independent contractors outside the "employee-like worker" definition. The amendments to the law in this area are intended to create a safety net of minimum standards and protections for employee-like workers.

(B) Labour hire-related changes

Same job, same pay

The new "same job, same pay" framework within the FW Act empowers the FWC to order that labour hire workers engaged by a host company receive the same pay as would be received by the company's employees under a host employer's enterprise agreement. The purpose of this change to the law is to prevent employers from using labour hire to undercut the wages or conditions afforded to permanent employees (via their enterprise agreements) in respect of labour hire workers.

The "same job, same pay" framework applies to businesses with 15 or more employees that are covered by an enterprise agreement and use labour hire workers to supplement their workforce. We note that industry sectors such manufacturing and construction often rely on labour hire, and we expect to see many applications for "same job, same pay" orders over the coming months in these industries.

The amendments enable the FWC to make "same job, same pay" orders that require labour hire companies to pay workers the same wages as those stipulated in the host employer's enterprise agreement, if the worker has been working for the host employer for more than three months and performs the same work as the host employer's permanent employees.

A host company, its employees, labour hire workers or relevant unions can apply for an order to be made.

The FWC must make a regulated labour hire arrangement order in the following circumstances:

• A labour hire entity supplies its employees to perform work for a host company; and
• An employment instrument applies to the host company that would apply to the labour hire workers if they were employed by the host company.

An order will not be made where the host company is a small business (i.e., less than 15 employees), the labour hire worker is predominantly providing a service rather than labour, or it is not fair and reasonable in the circumstances to make the order.

"Same job, same pay" orders issued by the FWC will commence operation on 1 November 2024. However, applications can be made in advance of this date.

Tax

On 6 December 2023, the ATO issued Taxation Ruling TR 2023/4 ("TR 2023/4") and Practical Compliance Guideline PCG 2023/2 ("Draft PCG 2023/2").

TR 2023/4 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 that constitute the relationship. 

The scope and binding nature of TR 2023/4 is limited to the purposes of the pay-as-you-go (PAYG) withholding rules that 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, labour hire payments and alienated personal services income (PSI).

However, TR 2023/4 is currently being reviewed by the ATO. On 26 June 2024, the ATO issued Draft Taxation Ruling TR 2023/4DC1, which expands the ruling to also consider who is an employee for the purposes of the superannuation guarantee.

PCG 2023/2 was issued in conjunction with TR 2023/4 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 FW Act 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 — very low risk, low risk, medium risk and high risk — and explains the extent of the ATO's engagement in respect of each zone.

The main employment law risk is misclassification, followed by the risk of a challenge to the terms of the contract under new unfair contract laws, and potential sham contracting risks.

Misclassification

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 hours 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) may result in a penalty of up to AUD 469,500 per breach (or up to AUD 4,695,000 for a corporation engaging in a "serious contravention") (such penalties are liable to increase to AUD 495,000 and AUD 4.95 million respectively if the Crimes and Other Legislation Amendment (Omnibus No. 1) Bill 2024, as drafted, is passed). This means that if an employee is misclassified as an independent contractor, in addition to the worker being entitled to recover the underpayment, depending on the circumstances, the employer may also be liable to pay maximum penalties for noncompliance with the FW Act or minimum terms and conditions of employment (to which employees are entitled) under an applicable industrial instrument.

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.

Unfair terms

The FWC also has the ability to set aside, amend or vary unfair contract terms of independent contractors earning under AUD 175,000 per annum if it finds that any contract terms, such as those related to hours or wages, are unfair.

Sham contracting

Where an entity is found to have misrepresented employment as an independent contractor arrangement (i.e., where an entity is found to have engaged in sham contracting), penalties of up to AUD 469,500 apply.

The main tax risk is misclassification. If the ATO or State Revenue Office finds that an individual is an employee, this will lead to liability for the following:

• Failure to withhold PAYG from worker payments
• Failure to make superannuation contributions
• State payroll tax for employees and individual contractors (unless an exemption is available) 

Tax penalty may be imposed 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.

The main tax risk is misclassification. The ATO and State Revenue Offices have a focus on individual contractors and the risk of misclassification is high.

A finding of misclassification can lead to liability for failure to withhold PAYG (including the Medicare levy). Penalties can be up to 100% of the amount that should have been withheld, depending on the level of culpability, plus interest for late payment.

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 2024, the rate for superannuation guarantee is 11.5% of ordinary time earnings.

The 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. There is a range of other penalties that can apply to other instances of noncompliance with superannuation guarantee obligations.

As noted above, the ATO is reviewing its guidance on who is an employee for superannuation purposes, in light of the recent case law referenced above. On 26 June 2024, the ATO issued Draft Taxation Ruling TR 2023/4DC1 which expands TR 2023/4 to also consider who is an employee for the purposes of the superannuation guarantee.

SGC has three components, as follows:

• Superannuation guarantee shortfall (i.e., superannuation 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 the following:

• 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 superannuation 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. A company director can also become personally liable for any unpaid SGC.

It is more common for the ATO to impose administrative penalties, but the ATO can apply criminal sanctions on individuals or companies in certain circumstances (e.g., where there is fraud or evasion).

Breaches of the FW Act are not criminal offenses and do not attract criminal sanctions, with the exception that underpayment of wages by employers will become a criminal offense from 1 January 2025. This may be relevant where independent contractors are found to be employees and minimum wage requirements have not been met regarding such individuals.