By Tina Zawila
Whilst this topic is not new, there is an important change coming up on 26th August 2024, when the Fair Work Act’s definition of “employee” will be modified. Employees and principal contractors must be aware of these changes and assess any implications for their operations.
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 provides three criteria for determining whether an individual is an employee and whether a person is an employer:
The real substance;
The practical reality, and
The true nature of their working relationship.
These factors are ascertained through examining 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. The multifactorial approach is far more complex and less certain for those engaging as contractors as there are many factors to be considered in determining whether a person is engaged and working as an employee or contractor.
This same Act also introduces a new section, 15AB, effective 27th February 2024 which allows parties to enter an opt-out arrangement through an Opt-Out Notice exempting their relationship from the new employee definition where a worker’s earnings exceed the contractor high income threshold (however this threshold is yet to be determined).
Often the entitlement to superannuation is key to the question whether someone is an employee or an independent contractor. 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.
This Act also changes the definition of a casual employee, where the characterisation of a relationship for casual employees will also be assessed with regard to similar factors (i.e. the real substance, practical reality and true nature of the relationship).
The professional team at UHY Haines Norton are here to help you with all of your business, employment and taxation related questions, call us today on 4972 1300.
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