Clinical Kit 106 - Employment Contracts - Are you Legal or Not?
Options being discussed include;
- Wage/salary employee based
- Commission employee based
- Facilities & Services Agreement
First and foremost, This information although well intentioned is not legally definitive advice and is only provided in an educational manner. Once you have a feel for your situation, it would be then best to discuss with your employer and legal advisor if you feel your situation needs reviewing. Let us tackle the employee or contractor aspect first.
Contractor or Not?
The important issue(s) here is that the ATO basically considers you NOT a contractor unless proven otherwise. This is because generally most smaller physio/chiro/podiatry businesses provide the work facilities, take the business risk, provide the tools of the trade and dictate the hours of your employment. All these factors indicate the relationship is an employer/employee relationship. Having an ABN is not an immediate reason to be considered a contractor at all, as there are plenty of other reasons an individual will have an ABN. You need to get this right as it has important ramifications as to who is responsible for superannuation and tax payments.
To make this decision easier, the ATO has created an Employee or Contractor Online Tool that assists employers to determine if their workers are employees or contractors.There is more background information explaining the relationships here.
4/8/2016 Updated information and resources from the ATO can be found here.
So if you're not a contractor, should you be paid a wage, including basic entitlements like sick/career pay (10 days per year), holiday pay (20 days per year), public holidays (approximately 10 per year), holiday leave loading (17.5%) and superannuation (9.50%)? In this situation, it depends on whether you fall under the more common national employment standards (NES) or not. If you are working for a business that has a company structure (most employers have this as a method of personal asset protection) then you probably fall under the NES system. If not you likely fall under the less common state legislation. As this does vary from state to state and is less common, I will talk about the NES.
The NES are 10 minimum employment entitlements that have to be provided to all employees.
The national minimum wage and the NES make up the minimum entitlements for employees in Australia. An award, employment contract, enterprise agreement or other registered agreement can't provide for conditions that are less than the national minimum wage or the NES. The 10 minimum entitlements of the NES are:
- Maximum weekly hours
- Requests for flexible working arrangements
- Parental leave and related entitlements
- Annual leave
- Personal carers leave and compassionate leave
- Community service leave
- Long service leave
- Public holidays
- Notice of termination and redundancy pay
- Fair Work Information Statement
There are 122 awards covering the majority of employment situations. Our associated admin teams and us the health professionals fall under the Health Professionals and Support Services Award 2010 [MA000027]. Full details can be found here.
Now the key principal here is that employees are paid a salary, based upon an hourly rate. This is important, as the hourly rate is the key from which sick pay and holiday pay are calculated. If you are currently being paid on an incentive or commission base only basis, then there is no base hourly rate from which your sick and holiday pay entitlements can be paid. In talking with young employees, many are on commission only salaries. I agree that some form of incentive is important in the right situation. The good news is that it doesn't need to be difficult to provide and still stay within legal obligations.
Working Example: Commission cf. Salary + Incentive
For simplicity lets ignore tax.
Let us say you currently see 55 clients per week @ $80.00 per visit, 48 weeks per year and earn 45% per client. You don't receive holiday and leave loading, sick pay or superannuation, as 'it is all included in your salary',
Annual salary is 55*48*.45 = $95,000.
If you are not a contractor or under a Facilities & Service Agreement (see next section), then this arrangement is illegal to the best of my knowledge.
Instead you could construct your employment contract like this.
Base Salary: 40 hour week, 48 weeks per year @ $33.00 = $63360
Holiday Pay: 4 (weeks holiday pay) *40 hours * $33.00 = $5280
Holiday Loading (17.5% * holiday pay) 0.175 * 840.00 = $924
Sub total wages = $69564
Superannuation (9.50% * wages) = $6608
Subtotal wages + superannuation = $76172 **
Incentive: Client numbers per week over 45 paid commission 50%
10 * 48 * $80.00 * 0.5 = $19200.00 **
Your holiday pay and loading would still be calculated on the base hourly rate, so this would stay the same, but you would earn extra superannuation.
So $19200 * 9.5% = $1824.00 **
Total Annual Salary ** = $97196
So the Base Salary is the same as the 'old style' Commission Salary offering, only with full consideration of all legal responsibilities and still retain an attractive incentive.
- If the person would normally work a public holiday and the clinic was not open or if they are sick on a normal working day, they are paid their base rate.
- Tax is not factored here and would need to be considered based upon the pay cycle, but would be similar for the two examples.
- Based on the NES Health Award, employees working outside 'normal' office hours or on weekends are entitled to penalty rates.
- Some businesses may have a Registered Agreement with the Fair Work Commission, which would override the Health Award, but a basic principal of any registered agreement is that no worker is worse off than those on the relevant award.
Facilities & Service Agreement
The final type of employment arrangement is a mirror reversal of the contractor arrangement, in that the worker seeks a contracted arrangement with the business to provided Facilities (rooms, equipment, supplies, IT) and Services (administration, advertising, uniform, stationary), hence being called a Facilities & Services Agreement. Common in medical practices, this is a legally drawn up document that is becoming more common in allied health practices. Practically it is drawn up by the business and offered to the worker. It works where the business provides the facilities and services for a % fee of the worker's billings and the remainder of the billings is paid to the worker. The worker is responsible for their superannuation and there are no other entitlements. This type of arrangement provides employers with greater flexibility with staffing and avoids the need to pay state based payroll tax when the total salary bill exceeds the payroll tax threshold.
The above information has been provided to help all involved in business relationships to better understand the general lie of the employment landscape. If you feel something is amiss with your situation, use the resource links to gain a better understanding of your situation and then arrange a time to speak with your employer to start a dialogue to discuss your situation and your concerns.
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