Independent Contractor Arrangements: Changes You Need To Know

REVISED STATUTORY DEFINITION OF EMPLOYEE

Effective August 26, 2024, the Fair Work Legislation Amendment (Closing Loopholes No. 2) Act 2023 (Cth) will introduce a new section 15AA to the Fair Work Act, providing an "employee definition test."

To determine an individual's status as an employee or independent contractor, this new section emphasises considering the "real substance, practical reality, and true nature" of their working relationship. In evaluating the "totality of the relationship," parties must engage in a "multifactorial assessment" that encompasses both the written terms of the agreement and how it plays out in practice.

OPTING OUT OF THE NEW STATUTORY DEFINITION

The Fair Work Act's latest amendment, Closing Loopholes No. 2, introduces a new section, 15AB, effective February 27, 2024. This section allows parties to enter an opt-out arrangement through an Opt-Out Notice, exempting their relationship from the new employee definition.

An individual's eligibility to provide an Opt-Out Notice is contingent on their earnings under their engagement with the entity surpassing the "contractor high-income threshold." 

However, specific details regarding this threshold and its calculation method have yet to be disclosed. We anticipate the release of this information closer to August 26, 2024.

DETERMINING SUPERANNUATION ENTITLEMENTS

To determine whether a worker is entitled to superannuation payments under the Superannuation Guarantee (Administration) Act 1992 (Cth) (SGA Act), parties must focus on the written contract to establish whether the worker is considered an employee.

However, businesses should exercise caution, as a worker who may not be considered an employee under the common law definition of the SGA Act might still be deemed an employee under the legislation's expanded definition. This is because the SGA Act broadens the meaning of an employee to include individuals working under a contract with another party "wholly or principally" for their labour.

Importantly, the ATO's PCG clarifies that businesses who obtain specific advice from workplace relations specialists or lawyers regarding a worker's classification under the ordinary and extended meanings of employee in the SGA Act will satisfy two of the PCG's seven criteria, making it more likely that the relationship will fall within the no or low-risk zone.

UNFAIR CONTRACT TERMS IN SERVICES AGREEMENTS

Starting August 26, 2024, contractors can appeal to the Fair Work Commission (FWC) if they believe a services contract contains an unfair term.

The FWC can:

1. Consider a range of factors to determine if a service contract term is unfair.

2. Issue an order to set aside, amend, or modify all or part of the contract if it contains one or more unfair terms.

These new laws apply only when there is a "constitutional connection." This means the contractor works under a services contract with a constitutional corporation.

Contractors whose income exceeds the designated contractor high-income threshold are ineligible to seek remedy for an unfair contract through the Commission.

Alternatively, contractors can apply to a court to review their service contract under the rules outlined in the Independent Contractors Act of 2006 if they believe the terms are excessively harsh or unfair. This approach creates separate review pathways for contractors based on their income levels.