Here is the second part in the series looking at status of employment as individual or independent contractor. If you would like to follow up on the first one you can read it here.
Specific Q & As
Q: Is the difference in employment status based on a legal or accounting principles?
A: There are many accountants who offer compliance solutions without understanding this is a legal issue. The Tax Legislation over arches the PSI legislation and the interpretation of its compliance regime has been tested at law. This has nothing to do with accounting, furthermore there are industrial law provisions to consider under the Fair Work Commission, and again this has nothing to do with accounting.
Q: What entitlements does an employee receive that a subcontractor does not?
A: Employment entitlements such as sick leave, holiday pay and long service leave.
Q: If a person could be either, are they trading off entitlements and job security by accepting a contractor role? What are the tax or other benefits that would make accepting a contractor agreement attractive?
A: The notion of job security in employment is somewhat overplayed. In reality there is little difference between being an employee and a contractor, the main difference lies in some of the protections for employees under the Fair Work Act, such as unfair dismissal.
The benefits of contracting stem form a number of areas including but not limited to:
- The ability to negotiate flexible working arrangements
- The ability to negotiate higher rates of payment and also the ability to be paid for incremental improvements in productivity or the individual’s performance
- The ability to reduce the amount of tax paid by virtue of claiming legitimate business deductions as listed on the ATO website
Q: Who decides whether they are engaged as a IC or employee?
A: We can’t answer this question. It depends on a number of issues and there are numerous variations. We would need to look at each individual contract that the person has with their practice.
Q: Is it true that to be engaged as an IC, the individual needs to have their own office, work for more than one company and be independent in advertising and hours of work? This being the case, and physiotherapy being largely an appointment based profession; it would make caseload management difficult for employers.
A: Under the PSI legislation that is correct....however under a "Common Law" model this is not the case. Our system moves the IC outside the Industrial Relations, and PSI restrictions and is legal, has been tested in the Federal Court and is ATO approved.
Q: Does the employee or employer have the ultimate responsibility to get it right with the employment relationship?
A: There is a clear and unambiguous mutual responsibility.
Q: What are the benefits and pitfalls of each category?
A: This is a very subjective issue however it is probably best looked at from the perspective of the practice rather than the individual. The reason businesses use contractors are many and varied, however the following will give you some indicators;
- A business has more flexibility to manage the hi’s and lo’s in revenue performance
- The business does not pay for “bench time” for example when work is slow or the individual is on holidays
- They can engage individuals on the basis of payment for outcomes and value adding which rewards the individual for their productivity
- They move outside some of the restrictive requirements under award frameworks and Industrial Relations issues such as unfair dismissal
- The individual will receive a better net income (in most cases) so they are better off financially
Q: If a health professional thinks they are being employed inappropriately, what steps, like meet with employer and attempt to resolve issue, record outcomes of all meetings and correspondence, engage an independent mediator, would you suggest they undertake to correct their situation?
A: This is a vexed issue. All of the suggestions you make are valid, however if this is done via their accountant (which is our experience) the outcome will be flawed and the IC will still be non compliant. In many cases an accountant will advise an individual to get a company or trust and invoice with an ABN through that conduit and say, “it’s okay”. This is the worst advice possible.
Q: What resources can you recommend for additional background reading and education?
A: Disturbingly, 94% of all independent contractors audited were non-compliant, which exposes the individual and the engaging company to a high level of risk. The following resources are made available to you;
- Click Contractor Compliance
- Click The Compliance, Productivity & Profit Improvement Compendium
Q: What is Workforce Advisers Group?
A: We are a Contractor Management company and have three areas of operations:
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- Consulting with companies concerned about the compliant engagement of independent contractors
- Where appropriate, introduce a precedent based common law contracting solution, which legally sits outside the testing regime of the PSI legislation and is ATO approved
- Work with companies to create performance or outcomes based solutions which are designed specifically to improve productivity.
Doug Cary FACP
Specialist Musculoskeletal Physiotherapist (awarded by Australian College of Physiotherapy, 2009)
PhD Candidate Curtin University
Clinical Director AAP Education