By Mark Armstrong, Senior Associate |

You may have seen that there have been changes to the Fair Work Act 2009 (Cth) (“the Act”), which came into effect as of 26 August 2024.  A lot of the noise and press interest relates to the ‘right to disconnect’, but for agencies and brands, it is the other changes that have the potential to dramatically shake up how they operate in the advertising and marketing space.  Any business that utilises freelancers or contractors, especially talent, on short-term engagements will potentially be impacted and will need to update their contracts and practices. In a true throwback, the legal definition of ‘employment’ in the Act has been amended to entrench in statute what had previously been governed by the common law, being that a holistic view of the whole working relationship will determine whether or not individuals are actually employees.  Recent case law had reversed that view, but here we are again – the ‘whole of relationship’ test will now apply, and will have far-reaching effects in terms of determining when a worker is a contractor or an employee, and thus what entitlements they should be receiving.

Individuals classed as independent contractors under the outgoing law may now be deemed employees if the whole of the relationship indicates that they are actually an employee.  Consequently, this bestows a range of new rights on such individuals and also imposes a raft of obligations on employers.  All businesses that rely on freelancers and contractors should immediately examine their agreements and working relationships with these individuals to ensure that they are compliant with the new changes.  In essence, if it looks, swims and quacks like an employee, it probably is.  Read on as we explore the key changes and answer some questions that may have crossed your mind. 

What are the key changes?

The Act has been amended to provide a mechanism to work out if an individual will be deemed an employee. Now, ‘the real substance, practical reality and true nature of the relationship’ between the parties must be considered (known as the ‘whole of relationship test’).  The Act notes that when applying the whole of relationship test, the totality of the relationship must be considered, which includes considering other factors such as how the contract is performed in practice and not just the terms of the contract.

These new changes bring the law back in alignment with where it was prior to two recent cases, returning to the multi-factorial approach which Courts have historically taken.  The legal playing field was changed in 2022 after it was held that the starting point for deciding the relationship was the contract between the parties. The High Court held in Personnel Contracting[1] that assessing if an individual is an employee or a contractor should not always be determined by the totality of the engagement and a contract’s terms can be the determining factor.  This decision was confirmed again in 2022 in Jamsek[2], where it was held that where parties have signed a contract and the contract has not been challenged as being a sham or ineffective under law, the contract will be indicative in determining the work relationship. The updates to the Act suggest that legislators have taken a dim view of these decisions and the Act has been updated to effectively cancel out the precedent set by these cases and revert to the previous position.

Currently many businesses are relying on independent contractors deemed as being contractors under contracts, with a high level of confidence given these High Court decisions. Now, under the updated laws, while the terms of a contract are one factor to be considered, they are no longer the primary factor and other aspects of the whole working relationship will be given more weight.

Other notable changes to the Act include:

• contractors now have access to protections under unfair contract terms legislation and can apply to the Fair Work Commission if they believe a contract includes an unfair term;
• gig-worker changes: independent contractors that are ‘employee-like workers’ that: (i) are doing digital platform work (e.g. gig workers such as food delivery app delivery drivers); or (ii) work in the road transport industry, (together known as ‘Regulated Workers’) are now protected by minimum legal standards; and
• amendments have been made to the definition of ‘casual employee’. Where there is ‘the absence of a firm advance commitment to continuing and indefinite work’ and the employee would be entitled to a casual loading or pay rate for casual employees (under their contract or a fair work instrument such as an award), they will be a classified as a casual employee.

Does this mean that my contractors/freelancers could now be considered employees?

YES.  It does not mean all contractors/freelancers will be employees, and businesses can still legitimately engage contractors, but the practical nature of how they are engaged is extremely important to get right.  The real substance, practical reality and true nature of the relationship (so the ‘whole of relationship’) is to be taken into consideration. This includes looking beyond what is stated in the contract. It is not enough that the contract states that they are an independent contractor and sets them up as one.  Rather it is a more practical assessment of the context and how the working arrangement actually operates.  Factors that are taken into account in whether a contractor is a true contractor or an employee, include:

• the nature of the work conducted;
• the level of autonomy provided;
• the payment of remuneration and tax arrangements;
• who controls how the work is done;
• who sets the hours of work;
• who bears the financial risk; and
• who provides work equipment.

A contractor is more likely to be considered a contractor if the worker sets their own hours and fees, provides their own work equipment, shows a great deal of autonomy and will be liable in the event that work performed is unsatisfactory.  Conversely, where the individual must work during hours set by the company, uses company equipment and tools, is unable to delegate obligations, carries no financial risk or responsibility (as it sits with the employer), and is ultimately under the control of the company, then the worker is likely to be considered an employee in these circumstances.

Further, employees are generally engaged for an ongoing period whereas contractors are generally utilised for a specific task without an expectation of ongoing work.  Other indicators of an independent contractor relationship, such as where individual sole traders with an ABN invoice for their work, will not be determinative – they could still be classified as an employee if the whole of the relationship indicates that they are an employee.  Fundamentally, if a worker is to be deemed as an independent contractor, they will need to be treated as such and should retain a reasonable amount of independence and autonomy.

What if the contract specifically states that the individual is an independent contractor?

This is no longer a watertight argument. The amendments make it clear that regardless of what the written contract might look like, what counts is what the relationship looks like in practice.  Even if the individual signed a contract that states they are an independent contractor, if the whole of relationship test shows several factors that indicate that the worker is an employee, this would likely be the case.

Can contractors opt out of being classified as an employee?

Only contractors whose income is over the contractor high income threshold (currently set at $175,000 per annum) can opt out.  Otherwise, if the whole of relationship test shows that the individual is an employee, then employee rights and obligations will be bestowed upon that individual.

If my contractors would now be considered employees, what do I need to do?

First, you will need to treat them as employees, and in doing so you need to determine what category of employee they are – i.e. casual, part-time, or full time?  You will need to check for any applicable Modern Awards and ensure the employees are receiving the appropriate entitlements under the Award (minimum pay, etc), and ensure the employees receive their minimum entitlements under the National Employment Standards including that in relation to maximum weekly hours, flexible working arrangements, leave entitlements, termination notice and redundancy pay.

All new employees must also be issued a copy of certain documents including:

• for all new employees: the Fair Work Information Statement; and/or
• for casual employees: the Casual Employment Information Statement; and/or
• for employees on fixed term contracts: the Fixed Term Contract Information Statement. This document must be issued as soon as possible after starting, again after 6 months of employment (or 12 months for small businesses) and again after 12 months (excluding small businesses).

These documents are all accessible via the Fair Work Ombudsman website.

As noted earlier in this article, casual employees are characterised by the absence of a firm advance commitment to continuing and indefinite work, and entitlement to casual pay rates.  Casual employees employed on or after 26 August 2024 who believe that they would no longer fit within the updated ‘casual employee’ definition are entitled to notify their employer that they wish to be converted to a permanent employee after 6 months (12 months for small businesses).  There are circumstances in which employers can disagree, including where there are fair and reasonable operational grounds for not accepting the notification, but otherwise, the employer must accept.  For casual employees employed before 26 August 2024, the previous system will apply up to 6 months after this date (12 months for small businesses), after which the new casual conversion scheme will kick in.

If my workers are definitely classified as contractors, who is responsible for tax, superannuation and insurance obligations?

The changes to the Act do not alter the meaning of ‘employee’ in terms of tax, superannuation and workers compensation laws.  Employers are typically responsible for tax, super and insurance for employees.  However, contractors are usually responsible for their own insurance, tax and super obligations.

Notably, under the language in our superannuation guarantee laws, contractors that are paid wholly or principally for their labour, as well as sportspersons, artists and entertainers (including support staff for these individuals and various other persons that perform services in the film, TV and radio fields) are entitled to receive superannuation contributions, as they are considered employees for super purposes.  To clarify, generally, individuals who are contracted to achieve a specific result (such as when you engage a plumber to fix a technical issue with your pipes) are not owed superannuation, however a contractor that you engage to hold a boom mic on a TV shoot, or a performer to appear in a TV shoot, would be owed superannuation.

Further, if the individual contractor is a performing artist, PAYG tax will also need to be withheld on behalf of the individual and transmitted to the Australian Tax Office, given the Australian Tax Office’s position on performing artists, including talent, influencers and other performers engaged in promotional activity.

What do I need to do right now?

Review your current workplace arrangements and contracts with your contractors, freelancers, talent and staff immediately.  If your workers are contractors, you should familiarise yourself with the relevant changes, such as contractors’ protections under unfair contract terms law, to ensure your contracts and systems are compliant.

If you are currently engaging workers as contractors/freelancers but are concerned that the whole of relationship test could indicate that these individuals are employees, you may need to make changes in your workplace to either: (i) ensure the individuals are being treated appropriately so they are correctly classified as independent contractors; or (ii) ensure that individuals that would be classified as employees are receiving all entitlements they are owed.

Contact us

As noted above, correctly classifying individuals is contextual and if you are unsure about how your workers will be classified or your obligations to your workers, please do not hesitate to contact us.  We will be able to advise on your position and provide practical advice to ensure you are compliant with the updated changes.

[1] Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2022] HCA 1.

[2] ZG Operations Australia Pty Ltd & Anor v. Jamsek & Ors [2022] HCA 2.