Contractors get the job done better

A thought provoking article from Stephanie Zillman on the Dynamic Business website:

Contractors get the job done better

There’s a myth surrounding contractors: that they’re less loyal than full-timers, and not as productive. The reality though, is quite the contrary.

The just-released 2013 IPro Index found that contractors deliver heightened productivity and loyalty.

First developed in 2009, the now annual index by Monash University and sponsored by Entity Solutions, examines the attitudes of white-collar contractors (aka independent professionals or ‘IPros’).

This years’ results reflect the findings of previous years, finding that IPros are keen to share responsibility for project outcomes and are determined to work with permanent staff to achieve better results.

Key results:

• 94 per cent agreed or strongly agreed that they had their client’s best interests at heart

• 93 per cent agreed or strongly agreed they consistently meet specific project goals.

Far from being a casual resource with little loyalty, IPros continue to act as a vital component of any business.

“The research clearly shows that IPros are immersed and happy in their work,” Entity Solutions CEO, Matthew Franceschini said. “Again we have found that this group is dedicated and very valuable to organisations looking for quality, professional staff resources.”

What’s more, contractors engage in this style of work not because they ‘can’t find’ a full-time role – but simply because they prefer this work style. Key lifestyle benefits cited include the variety of work, the sense of freedom and the perceived ability to earn more money.

Dr Tui McKeown, Senior Lecturer at Monash University and report author, said this year’s results build on previous years and show that, as a group, IPros are a powerful resource. “They can become a valuable asset which adds considerable value to an organisation,” Dr McKeown said.

“Engaging an IPro is effectively engaging a small business of one. The results from our examination of control reveal an IPro is also a quintessential partner and team player,” Dr McKeown added.

Because these professionals are small business owners in their own right, IPros are highly motivated to be successful and prosper. They work to do what is best for their clients because it is also best for them.

for the original article click here

What is Sham Contracting

Sham contracting is when an employer tries to disguise an employment relationship as an independent contracting arrangement. This is usually to avoid paying legal minimum rates of pay, tax, and entitlements, such as annual leave and sick leave. Arrangements such as these are not genuine and may be regarded as sham contracting.

Employers should be careful to avoid sham contracting. Just because a worker has an ABN or invoices for payment doesn’t automatically mean they are an independent contractor. Calling someone an independent contractor or getting them to sign a contract saying they’re an independent contractor doesn’t automatically make them one either.

Sham contracting arrangements are unlawful under the Fair Work Act 2009 (FW Act).

Employers should be warned – currently the courts are cracking down on sham arrangements and employers will be penalised if they contravene the legislation. It doesn’t really matter what name you give the relationship with your workers, or what type of contract you have; the courts will look at how that relationship works in practice, and impose heavy fines if you short-change your workers.  

To avoid corporate and/or personal liability, company directors and other senior managerial staff must ensure that they act within the scope of the law in their employment arrangements and that they are properly advised about any contracts in question.

Employers can avoid a contravention of the sham contracting provisions if they can show that they did not know that it was a contract of employment, rather than a contract for services and must also demonstrate that the intention was not reckless.

Contractor or Employee? Tips for Employing Contractors

Engaging contingent labour purely to save costs is fraught with risks, so employers should ensure they use contractors for the "right" reasons, and take adequate steps to protect themselves against potential claims. For some employers, they can face a significant risk of being deemed the "employer" of a contractor if care is not exercised.  

 

Of concern to many businesses is being found liable for entitlements associated with employment, including annual leave, superannuation and personal leave, along with exposure to unfair dismissal laws, and longer notice periods.
It doesn't matter whether your business has explicitly engaged a worker as a contractor, the law will disregard that if the nature of the relationship otherwise bears the features of an employment relationship.

To minimise risks in this area it is recommended  to ensure that contractors are engaged "for the right reasons. One of the "wrong" reasons is to save on rates of pay, a common example of this is the engagement of contract cleaners. Contract cleaners have specific minimum rates of pay under applicable modern awards . There have been businesses found attempting to save money by engaging their cleaners as contractors, so as to avoid the minimum hourly rates of pay under awards. 

Another “wrong” reason is simply because ‘that's what the worker wants’. It can be attractive from a taxation view to be engaged as a contractor, as opposed to an employee, but a worker who at the commencement of a relationship requests to be regarded as a contractor, may change their mind at a later date and  attempt to subsequently claim the entitlements associated with permanent employment.

Employers should always record the nature of engagement in a ‘solid’ contract that sets out and provides evidence in relation to why it is a contractor arrangement as opposed to any other sort of arrangement, and details of how the contract came about.

Another critical mistake that businesses can make in written contracts is to use the word 'employment' or 'employ' when they're talking about someone who they've deemed to be a contractor. A business that engages contract labour is not an ‘employer’; they are a ‘principal’. Someone who works under those arrangements is ‘engaged’, not ‘employed’, and not an ‘employee’;  they are a ‘contractor’.  Inadvertent use of the wrong terminology can cause issues should the matter be investigated.

Further tips for minimising liability include:

• Avoid giving contractors entitlements associated with an employment relationship such as 4 weeks annual paid leave. This is an employment entitlements and can cause the relationship to look like an employment relationship.
• Try to avoid specifying an hourly rate, as being paid an hourly rate is regarded to be consistent with being an employee
• Avoid long-term arrangements, as when an arrangement continues for several years, and that work is of a sort that you would get from an employee then you could wind up with the types of liabilities associated with employment
• Always review the arrangement on a regular basis – there is no ‘set’  amount of time when a contracting arrangement should be reviewed, but reviews should take place.

Differentiating Contractors and Employees

Does your business use contractors? The practice of deeming someone a contractor instead of an employee certainly reduces employer liability, but it can increase your legal exposure if the laws aren’t followed, if you inadvertently treat a contractor like an employee and don’t provide the relevant employee benefits and protections.

It can be difficult to determine whether a worker is an employee or an independent contractor and there are a number of factors you will take into account. A good indicator is the level of control you have over the worker, as generally, employers have a higher level of control over the way their employees perform tasks under an employment contract than they do over independent contractors.

Here are a few general principles to help you the distinction between contracting and traditional employment :

Employee	Contractor
An employee can be told when, where, and how to work	Free agent sets own hours, duration, place of work
An employee can be told to be available at specific times and engage in specific tasks at specific times. You can indicate specific times that specific tasks will be performed.	You agree on mutually acceptable deadlines – time frames are agreed, not dictated. Depends on availability and other workloads the contractor may choose to take on
An employer can dictate work methods and the manner of work to an employee, such as whether the work gets done all at once or in parts, or whether the person works on one project at a time.	You agree on mutually acceptable deliverables and outcomes, not method and manner. A contractor can take as much or as little work from whatever sources they see fit.
An employee cannot sub contract or pay someone else to do the work	A contractor is free to subcontract the work to someone else
The employer provides all or most of the equipment required	The contractor provides all or most of the equipment required and does not receive and allowance or reimbursement of costs
You can require an employee to attend various meetings	A contractor cannot be required to attend meetings, but can be invited.
The employer is legally responsible for the work performed by the worker, and liable for the cost of rectifying any defects	The contractor is legally responsible for their work and liable for the cost of rectifying any defect in their work.
You can prevail upon an employee’s specific use of time and where and when they work. You can require an employee take vacations at certain times, etc.	A contractor is free to accept or refuse work from whatever source they choose, work any time of the day or night, take holiday leave at their discretion.

Irrespective of the worker’s status as employee or contractor, there are still circumstances in which they may need to be treated as an employee.

Superannuation Superannuation Guarantee obligations will arise if the contract between you and the worker is wholly or principally for labour performed. A contract is wholly or principally for labour performed if the value of the labour component of the contract is more than 50% of the value of the contract as a whole. The issue will generally arise only where the worker is a sole trader providing tax invoices bearing an ABN for their services.

WorkCover Generally, workers’ compensation legislation in each State or Territory requires you to pay workers’ compensation premiums in respect of any ‘worker’.  In some circumstances, the legislation also treats contractors as workers. So, even if your worker is classified as a contractor, legislation may require you to ensure the worker is covered by a workers’ compensation policy.

Payroll Tax is payable for ‘wages’, and in some circumstances, payments to contractors are treated as wages for the purposes of payroll tax. For example, if a contractor only has one client other than you in a financial year, it is likely that you will have to treat the contractor the same as your employees and include the payments you make to the contractor in your payroll tax return.

Health and Safety As an employer, you are responsible of the health and safety of all workers under your management and control, regardless of whether they are classed as employees or independent contractors.

Discrimination As an employer or principal, you will be held ‘vicariously’ liable for acts occurring in your workplace even if you had nothing to do with the acts in question. This is regardless of whether the worker involved is your contractor or your employee , and this liability will exist unless you can demonstrate that you took reasonable precautions to prevent the acts from occurring.

If you are unsure of your employee’s status, or would like more information on contractors and employees, please contact Annette at End2End Business Solutions on (02) 8977 4002 for a customised solution.