Updates to Australia’s Workplace Law
Significant changes to workplace law came into effect on August 26th.
These changes are in place to more clearly distinguish between employees and independent contractors. Employers must be aware of these changes and ensure their contracts and business practices comply.
NEW DEFINITION OF ‘EMPLOYEE’
A key change is the introduction of a new definition of ‘employee’ under section 15AA of the Fair Work Legislation Amendment (Closing Loopholes No.2) Act 2023 (Cth) (Closing Loopholes No. 2). This new approach to classifying workers will focus on the real substance, practical reality and true nature of the relationship.
When parties are trying to establish the nature of a working relationship, they should take part in a multifactorial assessment. This means that how a party is labelled in a contract won’t be the only consideration, but the totality of the relationship and how it is performed in practice must also be explored.
OPT-OUT
A new provision has been inserted into the Fair Work Act that allows independent contractors that exceed the high-income threshold to ‘opt-out’ of the new definition being applied to their working relationship.
This means that if a worker provides notice to the employer, the new definition won’t be applied to their working relationship, and this notice may be revoked.
RISK CATEGORIES (ATO’s RISK FRAMEWORK)
The ATO has a Practical Compliance Guideline (PCG) that provides a risk framework for classifying workers as employees or independent contractors. Based on how a relationship is classified, worker classification arrangements can be placed into 4 zones of risk (ranging from ‘very low’ to ‘high’). The ATO considers 7 criteria.
Having a ‘very low risk’ or ‘low risk’ classification is more beneficial because this means that very few or no compliance resources at all will be allocated to the relationship.
IMPLICATIONS FOR BUSINESSES
Businesses must review the terms and conditions in their employment contracts to ensure workers are classified correctly as either employees or independent contractors and that they comply with legal requirements.
If a contractor’s earnings exceed the high-income threshold, consider whether they should opt out of the new definition. This may mean they are more likely to be classified as an employee.
In relation to the ATO’s risk framework, if you seek legal advice, you are less likely to be placed in the ‘high-risk’ category in the PCG. The ‘high-risk’ category will increase resource allocation, scrutiny, and compliance costs.
To avoid any legal consequences and ensure your business practices adhere to the updated legislation, it is essential to review your employment contracts and discuss how these changes can impact your operations. Quest Legal’s team of experienced employment lawyers can help you review your contracts and ensure you remain legally compliant.
