Is that temp admin assistant you sourced from an internet site a contractor, employee or something else? Ursula Hogben is co-founder and General Counsel of online business law firm LegalVision ILP and a lawyer with 15 years’ experience advising SMEs. Here she explains what the rise of the on-demand labour market means for those hiring help.
What are the traditional definitions of an employee and contractor and why are those definitions so important?
A contractor is an independent businessperson. They provide a service using their own equipment, in a manner they largely determine, where and when they want. An employee – full-time, part-time or casual – is part of someone else’s business. They use the equipment supplied by that business and follow the direction of the company about what they do and when and how they do it. With contractors it’s generally about the output, with employees it’s about the hours worked.
The distinction is important because the full suite of national and state-based employment law applies to employees. That means the business employing them has certain responsibilities. Such as paying employees super, giving them leave entitlements, deducting PAYG tax from their earnings and providing workers compensation if they’re injured.
Why are online platforms such as Freelancer, 99designs and Airtasker disrupting the traditional classifications?
As the nature of work has changed and become more flexible and casual, it’s become harder to draw the line between a contractor and employee.
An issue can start to arise when someone who is supposed to be a contractor starts doing repeat business for a single client, particularly providing repeat services. Then it starts to look more like an employment than contract relationship. That’s especially the case if the business is requiring certain hours be worked or providing a lot of direction about where and how work should be completed.
So it’s possible freelancing ‘micropreneurs’ will end up having a distinct set of rights and responsibilities from either employees or contractors?
Some have argued for that, but I don’t see it happening. To me, a micropreneur is clearly a contractor. Just because we are seeing a lot more micropreneurs doesn’t mean the existing category of contractor can’t accommodate them. I don’t see the courts creating a third category distinct from the existing two. An independent businessperson who chooses how, when and where they will work, for who, can be a micropreneur – and fit the legal definition of a contractor.
So where does that leave businesspeople who are using online platforms to source labour?
If a business is hiring someone, the onus is on that business to make sure the worker is categorised correctly and dealt with in accordance with that categorisation. That means business owners should have anyone they hire through an online platform sign a contract outlining both parties’ rights and responsibilities.
That’s also important for things such as safeguarding intellectual property, isn’t it?
Yes. If you hire someone to create intellectual property for you, you want to own it, clearly under a written contract. Unless you’ve got a signed contract to that effect, you may not own the intellectual property a freelancer creates while you’re paying them to produce something. Another common headache is super. If you pay someone $10,000 for a job in the belief they’re a contractor, and they later successfully argue they were an employee, you’ll be on the hook for $950 (9.5 per cent) of super.
How important is the location of the person a business is hiring?
If the worker is in Australia, they’re covered by Australian law. If they are in another country, they’re generally covered by the law of that country. In practice, it’s much more likely a business would run into legal troubles with a local worker, than one working out of Manila or Mumbai
So does it make good business sense to hire workers off online platforms?
If it suits a business to hire intermittent workers off online platforms, they should do so. The business world is evolving rapidly and taking a Luddite approach isn’t practical. All I’m arguing is the business owner doing the hiring need to establish if they’re hiring a contractor or a casual employee – looking at the law and facts.
They do that in two main ways. Firstly, they can frame their needs in terms of output, not hours worked, with flexibility on how, when and where. For example, ‘I need you to alphabetise these 200 files by Friday’ rather than ‘I’ll pay you for 16 hours of filing’. Secondly, they get a contract signed. That doesn’t have to be a new contract every time, using a template is fine, as long as it covers the essentials. Set out that the contractor can work flexibly and that you own their output including intellectual property created for you. But the difference between taking those two straightforward precautions and not bothering with them can be a world of pain. Get it right – your business is worth it!