Avoid the Risks of Underpaying Contractors
If a contractors price seems too good to be true, it probably is.
Under Australian Accessorial Liability provisions, directors, accountants and HR managers can no longer get away with turning a blind eye to workers being exploited within their labour supply chain.
If you contract workers and are aware (or ought to be aware) that those contractors are not being paid fairly for the work they are carrying out, or that the work they are doing meets the criteria for a permanent employee rather than contractor, the Fair Work Ombudsman (FWO) can prosecute you and/or their employer for the same breach.
The FWO set a precedence to prosecute against employers and accessories up the supply chain and it was reported that in 2016, 92% of employer prosecutions for employment contraventions led to further investigations up the supply chain.
“…principal contractors should not be able to absolve themselves of the responsibility to ensure the people performing the work in their networks are being paid correctly and treated fairly. Businesses must take their supply chain responsibilities seriously and ensure that the companies they engage to provide labour services abide by workplace laws, or expose themselves to significant financial and reputational risks.” – Natalie James, Fair Work Ombudsman
Coles and Woolworths who outsource their trolley collection services is a perfect example of accessorial liability. After an investigation, the FWO concluded that many of the contracted trolley collection staff were not being paid in-line with current legislation and so the FWO not only dealt with the actual trolley collection companies directly, but also pursued the principals up the supply chain (Coles and Woolworths) which led both companies to enter into settlement agreements and make improvements to their business oversight.
Another recent case where the FWO conducted a surprise night time visit to the MCG, resulted in a $132,217 penalty to ISS Facility Services Australia Ltd who hold a cleaning services contract there. ISS FSA Ltd received the fine for the exploitation of overseas cleaning staff within their supply chain. It was discovered that 11 of the overseas workers were underpaid a total of $37,471 between them for cleaning work undertaken at the MCG in 2014. ISS FSA Ltd were not the direct employer, but the FWO used accessorial liability laws to hold them accountable anyway.
This will ultimately continue going forward in a bid to improve working standards for contractors.
So what can you do?
To avoid the risks of underpaying contractors, you need to improve your oversight of operations to ensure everyone is being treated fairly and ethically. Key actions to take away from this include:
- Assess the working relationship of your contractors to be sure they are genuinely a contractor and not an employee.
- Ensure Independent Contracting arrangements satisfy the ‘Fair Contracts’ provisions of the Independent Contractors Act. In determining whether a contract is fair, a court may consider such things as whether the contract offers less remuneration than an employee doing similar work.
- Familiarise yourself with your contractor pay rates and/or commissions and perform regular workplace audits to ensure payments and/or hours are recorded accurately and wages paid meet the legal minimum requirements.
- Contractors that are correctly classified are entitled to superannuation – so check if you are liable for paying that.
- Engaging contractors in Queensland and soon Victoria, require adhering to new labour hire regulations surrounding licensing.
- Educate and train your staff regarding obligations and responsibilities to report possible breaches.
- Hold on to evidence of compliance measures you are following— paper or electronic trails of policies, complaint procedures and audits in preparation of a FWO visit.
With the rise of the Gig Economy, it’s not unusual to be outsourcing different areas of your business to multiple contractors. Therefore, if you are outsourcing any type of work, you need to try to determine the working relationship status and whether the rates of pay are compliant with the minimum regulatory laws.
Protect yourself and your business from becoming an accessory to employment contraventions within your labour supply chain… or face the consequences.
It’s understandable as busy business owners it can be tricky to keep on top of all of these new regulations, so if you need some extra support managing these obligations don’t hesitate to contact Human Resource Services on (07) 5530 1571.
