It is very likely that you have heard talk of the ‘Closing the Loopholes’ legislation – the most recent Federal Government initiative designed to reform workplace law.  A key piece of the legislation that passed recently relates to new definitions for ‘employee’ and ‘employer’ and how this is important in how it relates to determining whether someone is an employee or contractor.

Employee vs contractor

Without going into a full and legalistic history, “employee” and “employer” were determined to have common law meanings as developed by the courts through a number of precedent setting cases.  Importantly, until now there has never been a definition of what an ‘employee’ is, in the Fair Work Act. Due to this, in order to determine whether a worker was an employee or a contractor, we needed to apply a multifactorial test which included looking at things such as control over work, ability to market services, way the worker was paid and so on… the list goes on but we are going to look at this in more detail later in this article.

But in January 2022 the High Court determined that the contract between the parties shall be the primary thing in determining the working relationship.  This meant that a well written contractor agreement provided employers with a high degree of certainty as it was basically all that was required to confirm an individual’s contractor status. This removed the need for the multifactorial test, but we have generally still recommended that the test be applied as another layer of surety for our clients.

Multifactorial tests - employee or contractor?

The new ‘Closing the Loopholes’ legislation on this matter essentially reverses the 2022 High Court decision and we’re back to using the multi-factorial test – along with what actually happens in a practical sense.  If the worker is treated the same as other employees, then they likely will be considered an employee.  What this means is that employers need to be really clear in understanding the specific identifiers of a contractor and an employee using a range of the multifactorial tests such as:

• control over work (when it is performed and how)
• ability to say no to the work,
• ability to market services to others,
• ability to employee staff to do the work or delegate to others
• how they get paid – invoicing vs salary/wages
• provision of equipment
• who bears the risk
• provision of own insurance
• AND what happens in a practical sense

Only the Fair Work Act

The new legislation ONLY applies to the Fair Work Act, so doesn’t apply to any other State or Federal legislation.  Legislation that covers elements such as superannuation, workers compensation, long service leave, payroll tax are all separate to the Fair Work Act and may apply a different definition to an employee.  What this means is that an individual may dispute their status as a contractor and after applying the multifactorial tests, they could be deemed an employee under the Fair Work Act and could then be entitled to entitlements such paid annual and personal leave and underpayments in line with award entitlements. , They would also be able to challenge the termination of their services by making a claim for unfair dismissal and so forth.  However, this change in legislation is not a catch-all; it ONLY applies to the Fair Work Act, so for example, the worker may not be able to make a claim for Long Service Leave.

Turning back the clock - ouch!

Without doubt, this is a complex piece of legislation that may have resolved some questions (we don’t know which!) but has removed some certainty for employers and contractors alike.  In reality, the clocks have been turned backwards on this issue, and we feel our clients’ pain!

What is extremely important if you are looking to appoint any independent contractors is to ensure you have a clear and well written contract that is supported by the actions you take regarding how you treat those workers in the workplace.  Get in contact with the HR Staff n’ Stuff team if you have any questions regarding contracts and working arrangements you currently have in place, or if you are looking to appoint any new contractors. Getting it right from the start will minimise risk!