When is a Contractor Not a Contractor?
By Rebecca Barnett
“The problem is that wages on public holidays and weekends greatly exceed the opportunity for profit … it’s just not a good business practice to be paying penalty rates.”George Calombaris
When George Calombaris made that observation back in 2012, he probably had no idea just how hard (and expensively) it would come back to bite him in the bum. $7.8 million in wage theft to repay later, George has found himself in a spot of bother.
And now there’s trouble brewing for another famous celebrity chef as well. We certainly picked a topical time to talk about employment entitlements on the AMT blog! If you missed Part 1, you should go back and read that first.
Hands up those who have ever been paid penalty rates for weekend or public holiday work?
Perhaps the time has come for massage therapists to unionise. In September 2017, 8.5% of us were employed under the Award. Last month, that percentage had dropped to 6. WTAF?*
Somewhat unsurprisingly, the most common area of employment inquiry to AMT Head Office isn’t about the Award (because there’s so freakin’ few of us on it) but rather about being engaged as a subcontractor.
Subcontracting is the most common form of engagement for massage therapists but it is fraught with areas of grey, both for the contractor and the business the contractor is providing services to.
Unscrupulous businesses may seek to engage therapists under sham contracting arrangements to avoid paying the kind of entitlements that our celebrity chef George is not fond of, like penalty rates, annual leave, personal leave and superannuation.
Some businesses seem to labour under the false expectation that workers should share their commercial risks by effectively working below minimum wage.
Determining whether a worker is a subcontractor rather than an employee is not straightforward or simple though. It is a complex decision-making process that involves taking into account the full context in which duties are being performed and ‘the totality of the relationship’:
“The Fair Work Act takes the common law (based on case law precedent) view which is that the reality and the totality of the relationship between the employer and the person doing the work are the determining factors for deciding whether an employment relationship exists or that of an independent contracting relationship. The written terms of the contract or agreement are a consideration, to see if they reflect the reality, but are not conclusive. The Court will consider the reality of the relationship of primary importance.”Andersons Solicitors
Because of this nuance and the need to unpack the ‘totality of the relationship’, it is pretty much impossible to give specific insight or support when massage therapists ask questions about their employment status on AMT’s Facebook group page, which has been a fairly common occurrence over the past five years.
Employsure provides some broad tips on how to identify whether someone is genuinely engaged as an independent contractor. If you are a contractor and you answer yes to any of the following questions, the nature of your employment relationship is probably being misrepresented:
- Are you required to wear a uniform?
- Do you have limited control over how you conduct your work?
- Do you use equipment supplied to you? (not just massage equipment but think HICAPS terminal, record keeping software etc)
- Are your weekly hours and times of work set by the company?
- Are you engaged on an ongoing, continual basis?
The Australian Tax Office website (ATO) also has lots of resources to assist businesses to determine whether a worker is a subcontractor or an employee. The following attractive table outlining six key factors that determine whether the relationship is employment or contracting is taken directly from the ATO website.
Bonus Round – Basis of Payment
Raise your hands if you get paid per massage completed or on some kind of commission basis? Raise your hands if you were already aware that this is an indicator that you are an employee not a contractor? IKR!
The following information is quoted almost verbatim from the ATO website. (I added the bit about number of massages performed.)
Being paid per item or activity is a characteristic of an employee. Price per item or activity can also be called ‘piece’ or ‘piece-work’ rates.
You pay your worker a price per item or activity if they’re paid:
- a specific amount for each item or activity they produce (for example, number of research interviews conducted, quantity of fruit picked or number of massages performed)
- for the number of items or activities they produce during a defined time period (for example, daily, weekly or monthly).
Being paid on a commission basis is considered a price per item or activity.
Super Bonus Round
Raise your hands if your mind just blew.
Decisions Decisions …
The ATO website has a contractor/ employee decision tool which will help you determine whether you are being employed under the correct arrangements. It also provides information to employers/businesses about the tax and super obligations they need to meet. Because, of course, you already knew that most massage therapist contractors are actually treated as employees for superannuation purposes under the Superannuation Guarantee Act 1992, right?
“If a person works under a contract that is wholly or principally for the labour of the person, the person is an employee of the other party to the contract. “Section 12 (3) SUPERANNUATION GUARANTEE (ADMINISTRATION) ACT 1992
But superannuation is a more detailed blog post for next time.
The number of myths that propel engagement practices in the massage industry is truly terrifying. They drive the pathetically low rate of therapists being employed under the Award. “Everyone does it” might be expedient shorthand for employment policy but it ignores the fact that, just because something is common practice, doesn’t make it lawful.
Here is a quick overview of some of the myths that embed sham contracting within the massage industry.
Myth: If a massage therapist has an ABN then they are a contractor.
Fact: Having or quoting an ABN makes no difference to whether a massage therapist is an employee or contractor for a job. Just because they have an ABN doesn’t mean they will be a contractor for every job.
Myth: Everyone in the massage industry takes on therapists as contractors, so my business should too.
Fact: Just because ‘everyone’ is treating massage therapists as contractors doesn’t mean they have got it right.
Myth: If a massage therapist has a registered business name, they are a contractor
Fact: Having a registered business name makes no difference to whether a massage therapist is an employee or contractor for a particular job. Just because a massage therapist has registered their business name does not mean they will be a contractor for every job or working arrangement.
Myth: If a massage therapist submits an invoice for their work, they are a contractor.
Fact: Submitting an invoice for work done or being ‘paid on invoice’ does not automatically make a worker a contractor. (Please see above information about piece rates.)
Myth: If a massage therapist’s contract has a section that says they are a contractor, then legally they are a contractor.
Fact: If a massage therapist is legally an employee, a contract saying the worker is a contractor will not make the worker a contractor at law. Businesses will sometimes include specific words in a written contract to say that the working arrangement is contracting in the mistaken belief that this will make the massage therapist (who is an employee) a contractor at law.
If a massage therapist is legally an employee, a contract specifying that the massage therapist is a contractor makes no difference and will not:
- override the employment relationship or change the massage therapist into a contractor
- change the PAYG withholding and super obligations a business is required to meet
Stay tuned for the next exciting instalment where I will talk in more detail about the superannuation guarantee and obligations of businesses to pay super to contractors.
*Contractually obliged swearing
About the Author
As CEO of AMT, Rebecca Barnett cannot deny that her union roots run deep. Though she be but little, she is fiercely dedicated to massage therapists’ workplace rights.