The Australian government continues to roll out significant changes to the nation’s employment landscape with the “Closing Loopholes” legislation. In August this year, the new law aims to address the grey areas between independent contractors and employees. Here’s what you need to know:

The Current Situation

In Australia, the distinction between an independent contractor and an employee is pivotal, as it determines the rights and obligations of workers and employers. Currently, this classification hinges on various factors, such as the level of control an employer has over the worker, the method of payment, the provision of tools and equipment, and the degree of independence the worker has in their role.

The Key Changes

The “Closing Loopholes” legislation will introduce a new, more precise definition of employment. Key elements of the proposed changes include:

1. Simplified Definition: The new legislation will provide a clearer, more straightforward definition of who is considered an employee. This aims to reduce the ambiguity and the potential for misclassification.
2. Economic Dependence: One of the significant criteria under the new definition will be the economic dependence of the worker on the employer. If a worker relies predominantly on one company for their income, they may be classified as an employee, regardless of other factors.
3. Control and Direction: The degree of control and direction an employer exercises over the worker will remain a critical factor. However, the legislation will offer more explicit guidelines on what constitutes sufficient control to classify a worker as an employee.
4. Integration into Business: Workers who are integrated into the business, perform tasks that are central to the business operations, and work alongside employees will be more likely to be classified as employees.

Implications for Businesses

For businesses, this legislative change means the need for a thorough review of current workforce arrangements. Review existing contractor arrangements to identify risks that those arrangements may fall foul of the new definitions. You may find that you need to reclassify contractors to employees and extend employee benefits to those who were previously considered independent contractors. This could increase costs in terms of wages, superannuation contributions, and other entitlements.

Moving Forward

The upcoming changes will introduce uncertainty and complexity for businesses. A business might hire someone as an independent contractor based on a mutual understanding, as reflected in the contract terms. However, it’s possible that the individual could later be classified as an employee, creating a risk for the business in terms of potential claims for employee-related entitlements like back pay, award entitlements, and leave. This is due to the challenging task of determining the “true” nature of the relationship.