What Australia’s Amendments to its Fair Work Legislation Means

As the country’s workforce navigated the limitations brought on by the COVID-19 pandemic last 2020, a permanent shift in employment categories became prevalent and remains prevalent to this day.  

Aside from the two most orthodox employment options, which is to either work for an entity or own and manage your own business/company, independent contractors or what most refer to as “freelancers” have now become a viable employment option. 

Read: How Offshore Accounting Helps You Become Globally Competitive  

Being an independent contractor means being an individual who is not employed under an entity but provides services/products to that specific entity. More than a one-time transaction, the relationship between a contractor and the entity is bound by a set of payment and working arrangements to be carried out under a specific amount of time.  

Now, while this flexible work arrangement easily allows contractors to choose which entities or “clients” to work with, each engagement opens them up to several risks – given that they are not protected by the labor rights that protect those working directly under the company.  

This is where the Fair Work Legislation comes in. 

 
What is Fair Work Legislation? 

 
The Fair Work Legislation in Australia is a set of laws made to manage working conditions and protect workers' rights – identifying independent workers and giving them certain rights that their client entities (companies) must adhere to.  

This legislation clearly defines the difference between an employee and an independent worker and has set up guidelines to give independent workers the same benefits --- to an extent --- as employees. Depending on classification, they are now afforded the same minimum wage rates, leave entitlements and government contributions. 
 
Alongside this, the legislation also protects independent workers from sham contracting arrangements. Sham contracts are made by companies who deliberately mislabel their employees as contractors so as not to be legally obligated to provide mandatory benefits and provisions.  

Below are some of the most notable changes to this legislation: 

Clearer Definition: 

Enhanced clarity on distinguishing independent contractors from employees to prevent misclassification. 

Contractual Fairness: 

Introduction of measures to ensure contracts with independent contractors are fair and balanced. 

Anti-Avoidance Provisions: 

Specific provisions targeting schemes designed to evade employee entitlements via sham contracting arrangements. 

Stronger Enforcement: 

Increased penalties and enforcement mechanisms for non-compliance, including higher fines and potential court orders. 
 

Note that amendments are still currently underway, and the Parliament of Australia is set to provide specific guidelines on each of the changes stated above depending on factors such as industry, income threshold and the minimum standards to be considered an independent worker.  

What Does It Mean for Companies?

While it cannot be denied that the recent amendments made to the Fair Legislation Act are positive – protecting independent workers and contractors from being taken advantage of and ensuring that they are afforded the same rights and benefits as regular employees, not all companies have the resources nor the capacity to be able to handle the changes needed to be compliant with this legislation. 

For companies to be able to adapt, they need to spend a significant amount of time, manpower and resources to go over existing contracts with independent contractors to amend it and train the human resources department as well as the legal team to be well-versed in the amendments and apply it as needed in specific situations. Not being able to do so may lead to serious financial and legal consequences as companies who are noncompliant may find themselves faced with fines, lawsuits and state legal audits.  

The resources needed to be able to be fully compliant is not something all companies can spare. While it is important to acknowledge and uphold the rights of independent contractors, it is also important to understand the limitations of your company. For companies with these limitations, outsourcing their operational functions is an effective alternative. 

 
 
The Difference of Outsourcing and Independent Contracting 

Unlike independent contracting, availing yourself of the services an outsourced partner provides comes with no employee-employer responsibilities on your end. Your outsourced team/s are employed directly under the outsourced entity which means that it is their responsibility to fulfill all the employment rights and benefits that your outsourced team is entitled to. 
 
This means that your relationship with your outsourced team can be fully transactional: you pay for their services and in return you receive such services – given that it is within the terms of your engagement of course. This is a cost-effective and efficient alternative as you only spend money on the services you need without fear of legal repercussions.  

 
Outsourcing your operational functions also allows you to find talents whose quality of service is perfectly tailored to your own company’s needs. Free of geographical limitations, you can easily outsource outside of your country of registration and remain completely compliant within your own locality.  
 

In the end, this positive step towards progressive workplace inclusion is a welcome shift in labor rights but one that carries significant changes and responsibilities for companies who are in the habit of employing independent contractors. Depending on your company’s capacity, it is up to you to figure out how you will navigate these changes without negatively impacting your operations. 

Read Next: Understanding the Regulatory Changes in Accounting  

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