Contractor payments ... or are they an employee

FWO Challenges Payments to Contractors

The Fair Work Ombudsman recently instigated court action which challenged whether the worker was a Contractor or an Employee – FWO believe they are employees and the persons were underpaid.

A purchaser should ensure they are paying enough

A developing perspective being applied to all businesses is:

that when you are purchasing services, the amount you are paying to your supplier has to be at least what would allow the persons providing the service to receive a minimum wage.

Example:

A supermarket business, contracts with another business to provide people to collect trolleys, the supermarket must ensure they are paying the supplying business an amount that would cover at least minimum wage and any applicable award entitlements (including leave and overtime amounts) the trolley collecting person is entitled to receive. The supermarket cannot turn a blind eye to any underpayment of the intermediary business.

Contractors should not be paid less than employees

In the case where a transport company (Boske Road Transport) was paying individuals (who were engaged as contractors) less than they would have received had they been employees, FWO alleges that the drivers were underpaid as they were in fact employees covered by the Road Transport and Distribution Award 2010, and for one worker in relation to a period of long-distance work, the Road Transport (Long Distance Operations) Award 2010.

It is alleged three of the workers were underpaid hourly overtime rates and public holiday rates, and not paid for any annual or personal leave. The long-distance driver, who had the largest alleged underpayment, was also allegedly underpaid through failures to pay for loading and unloading duties and to meet a cents-per-kilometre entitlement.

As a general principle, this cannot be right.

Were they employees?

The Employee vs Contractor laws have 6 factors which together determine whether a person is to be treated as an employee or a contract for the different obligations such as PAYG Withholding, Superannuation, Fair Work Award application.

Control – who really determines how, when and where a task is to be performed

Independence – are they considered part of your business, or are they independent and free to accept or refuse additional work

Results – is the basis of the engagement purely payment for time or to produce a result based on a quote they have provided

Delegation – can the worker delegate/subcontract the task to another person - can they pay someone else to do the work

Terms of engagement – how was the engagement established

Risk – who pays for corrections? An employee is paid to work regardless if they make a mistake that needs rectifying, whereas a contractor would be responsible to fix any errors as part of the contract

No one test determines the relationship and not all tests are necessary for a definite conclusion as to the status of the engagement. Follow this link to access further information from the ATO.

Not all contractor relationships are “sham-contractors”

The Boske Road Transport case

Fair Work is challenging the company on the basis that the individuals are employees.

If they are then the law definitely applies the award and minimum payment applies.

Increasingly individuals who are contracted themselves or through another entity will still have to be paid at least what they would have been paid if they were employed directly. Another application of the “Better-Off Overall” Test.

Update - October 2021

Boske Road Transport (now known as Avert Logistics) won the case against FWO with the ruling being,

... ultimately the terms of the written agreements between the drivers and the respondent and more importantly the way in which they were entered into by the individual drivers satisfies me that the relationship is really one of independent contractor and principal and that was what was intended by the parties. The contracting parties were not the individuals themselves in most cases but were entities set up by the drivers for their own purposes. There is no suggestion that the respondent required the drivers to enter into the contracts in any particular way although it is clear that the respondents were offering engagement as a contractor. There is no suggestion that the contracts are a sham ...