Caution on independent contractors - the importance of correctly classifying workers
12 December 2023
In its compliance and licensing activities, the Labour Hire Authority (LHA) works to ensure providers correctly classify their workers, particularly in industries where sham contracting is a high risk.
Independent contractors and employees have different rights and obligations. Independent contractors provide services to another person or business, while an employee is employed by that person and serves in their business.
It is important for labour hire providers to correctly classify their workers, as this can affect entitlements, tax, superannuation and other obligations.
Recently, LHA received a licence application from a commercial cleaning business, where the applicant had reported a high proportion of independent contractors in their workforce.
LHA made contact with the applicant to clarify their use of independent contractors. As a result of that discussion, the applicant resolved to convert their workers to employees.
Based on the discussion with the applicant, and due to the high number of independent contractors noted in the application, LHA determined it was appropriate to grant the licence with conditions.
The requirements of the conditions include that the company supply LHA with:
- information on the provider’s workers
- a payroll employee summary report
- a profit and loss statement.
The conditions enable LHA to:
- ensure workers are correctly engaged
- monitor the provider’s conversion of independent contractors to employees
- ensure the company’s further compliance with their legal obligations.
The provider was sent LHA’s Guidance for labour hire providers: engaging workers as independent contractors and will be subject to continued monitoring.