Written Contractor Agreements Can Create Risks
Did you know that having written contractor agreements often creates a fictional not substantive relationship?
Many businesses use outsourced HR & IR companies to provide expert employment advice on how to engage an independent contractor. We applaud this notion. However we have consistently found that well-meaning advice on utilising a two party agreement has the potential to invite disaster.
This risk is more apparent in agreements for the provision of labour-based or consulting services extending for a prolonged period.
You Can’t Contract Out Of Legislated Regulations
It is common to enter into an agreement which purports to create a contracting arrangement. And in the vast majority of cases, it overlooks the fact you cannot “contract out” of legislated regulations – it’s the law! Even if both parties agree to the terms and conditions, it makes no difference! You still cannot “contract out”!!
Examining a contractor agreement starts with establishing how it addresses the various State and Federal regulations. We must consider the legislated deeming provisions when an individual provides their personal services (labour or intellectual outputs) to a business.
The service provider, while legitimately an independent contractor, may actually be a deemed worker for the purposes of particular acts!
Do You Comply With ALL The Regulations? Or Are You At Risk?
Are you uncertain how the contract deals with these regulations? Or could it have simply ignored them? Then, how do know who is liable for the various premiums, a variety of taxes and potential employment obligations?
For example, how do you know if a contractor agreement actually provides any comfort when considering the following regulations?
- The provisions of the state based work cover acts : Notwithstanding the agreement, are the individuals deemed workers for the purpose of the legislation? Thus making the business liable for the premium?
- superannuation: In spite of the agreement, are superannuation payments due to contractors under section 12.3 of the superannuation guarantee charge legislation?
- payroll tax act: In spite of the agreement, are the services subject to the exemption provisions of the payroll tax act? Or are they relevant contracts?
- Personal Services Income (PSI) Legislation: Notwithstanding the agreement, how does the service provider meet the validation tests required under the personal services income (PSI) legislation? Or meet the multi-factor tests applied by the ATO and the Courts?
Are you led to believe that these issues are not relevant to your independent contractor agreements? Then you are entitled to ask WHY this is so.
If you do not get a good explanation, then you should question the sustainability of the agreement. And you should seek guarantees that it does not lead to significant business risk.
It Is A Minefield, Eliminate Risk, Get The Right Advice
Ensure that you, or your client receive balanced advice. For that, you must understand both the “good and the bad”. It means clearly identifying who is liable and responsible under the various State and Federal Acts.
This may surprise you: In spite of the myriad of regulations, there is a better way to engage contractors to provide labour based services; A way that is robust, tested and lawful.
We recommend you seek appropriate advice on the engagement of contractors from advisors who actually have years of the experience in unravelling this legal minefield.
As a business owner, if you “get it right”, you can enjoy significant productivity advantages and admin reductions!
If you are a business advisor, getting the right advice from a specialist helps you protect your client’s business. And it supports the business improvements that you already help your clients achieve. That is an opportunity to strengthen your relationship with your client.
Contact us to mitigate the significant compliance and financial risks from not getting engagement processes and documentation right.