The new Fair Work changes that will affect
ABN Contractors
For many years there's been confusion about how to define the difference between an employee and an independent contractor. In February 2024 legislation passed in the Australian government (Closing the loopholes bill) that clarified the difference between an employee and a contractor along with significantly increased the penalties for sham contracting.
This legislation comes into effect on 26th of August 2024.
What we need to understand is that employees and "employee like workers" (including apprentices, trade assistants, or laborers) are not entitled to an ABN, even if the employer labels them a contractor or the work as contracting.
To determine if a worker is an employee or an independent contractor, the following must be considered:
- The real substance, practical reality and true nature of the working relationship. This also applies when determining whether a person is an employer or a principal for outworkers.
- All parts of the working relationship between the parties. This includes the terms of the contract and how the contract is performed in practice. This is a change from the existing test, which focuses mainly on the terms of a contract.
The difference between a contractor and an employee is in the definition and that is determined by 7 factors.
1. Control 2. Integration 3. Method of remuneration 4. Ability to delegate or subcontract 5. Provision of Tools and Equipment 6. Risk 7. Generation of goodwill/Profit
Examples:
Control.
An example of control, an employee is require to start work at 7:00 AM and finish at 3:00 PM each day.
A contractor can choose the hours they would like to lay bricks and the days.
Integration.
An example of integration, an employee serves in your business. They are employed to perform work as a representative of your business.
A contractor performs work to further their own business but they choose to present themselves as part of your business.
Method of remuneration.
Example, A Bricklayer is employed on an hourly rate and paid at the end of each week.
A contractor is employed to brick a complete project and is paid in stages or when the project is complete.
Ability to delegate or subcontract.
Example, an employee must lay the bricks themselves, they cannot pay someone else to lay the bricks.
A contractor has the ability to delegate the brickwork out to someone else and pay them to do the work for them.
Provision of tools and equipment.
Example, An employee Bricklayer brings his own personal hand tools, and the employer provides and transports all the other major equipment required, eg Mixer, Bricksaw, Scaffolding etc.
A contractor provides and transports all the tools including the major equipment to complete the works.
Risk.
Example, an employee bricklayer bares little or no risk or responsibility for the overall project, the employer bares the commercial risks and responsibilities for any costs arising out of injury or defects in their work.
A contractor bears the commercial risks and responsibilities for any costs arising out of injury or defects in the work.
Generation of goodwill/Profit.
Example, an employee Bricklayer gets paid for the work they do and doesn't benefit from the goodwill or profit from that work.
A contactor benefits from the goodwill and profit from the work.
After the 26th of August, it will be illegal for Bricklaying businesses to employ staff on ABN, irrespective of whether you are paying their superannuation and workers compensation.
The only legal way to employ staff will be on wages, casual, full time or part time.