Key legislative shifts impacting Employers of Record in Australia in 2024

Earlier this year, the Fair Work Ombudsman (FWO) announced several changes to employment regulations, many of which will take effect this August. The updates aim to create fairer and more transparent employment practices, address current gaps in the law, and meet the needs of today’s workplaces.

These legislative updates include changes to the definition of independent contractors, which will impact companies working with contractors, including Employers of Record. In August 2023, there were 1 million independent contractors, making up 7.5% of the employed workforce. These statistics highlight the portion of the Australian workforce affected by the upcoming legislative changes. 

This blog summarises the legislative shifts and what they mean for Australian employers. We will cover the current legislative landscape, changes affecting independent contractors and casual staff, and non-compliance penalties.

Number of independent contractors in Australia

Australia’s current legislative landscape

The Fair Work Ombudsman (FWO) planned several legislative changes this year, with the Albanese government introducing comprehensive reforms under the Fair Work Legislation Amendment (Closing Loopholes No. 2) Act 2024. These changes aim to close gaps in existing legislation to support fairer and more transparent employment practices. The updates include:

• Revised definitions: New definitions for ’employee’ and ’employer’ based on the working relationship’s substance, practical reality, and true nature.
• Enhanced employee rights: Increased employee protections, including new pathways for casual conversion and independent contractor rights.
• Stricter penalties: Higher penalties for employers that do not adhere to the updated laws.

These shifts aim to address discrepancies between contractual terms and actual work practices to more accurately characterise employment relationships.

Changes for independent contractors

The FWO has revisited regulations for independent contractors. From August 26 2024, the Fair Work Commission (FWC) will apply broader considerations to determine whether someone is an employee or an independent contractor. 

The new definition of an independent contractor

Rather than focus on the terms of a contract, the test to determine whether someone is an independent contractor will rely on how that person performs the contract. These changes include the working relationship’s practical reality and true nature rather than relying solely on written contracts.

Opting out of the new definition

Contractors earning more than the high-income threshold can opt out of being considered under the new definition. The employer can let them opt out, and the contractor can then choose to continue the current relationship.

New defences for sham contracting

Sham contracting occurs when an employer falsely represents an employment relationship as an independent contracting arrangement to avoid employee entitlements. Since February 27 2024, amendments to the sham contracting defence mean employers must now prove they reasonably believed a worker was a contractor at the time of engagement to avoid penalties for misclassification. 

The previous defence has been replaced, whereby employers needed to prove they did not know and were not reckless regarding the employment status. Now, employers must demonstrate a ‘reasonable belief’ that an independent contractor arrangement was appropriate at the time of engagement. 

Key points:

• New definition: Determining contractor status based on the working relationship, not just a contract.
• Opting out: Contractors earning more than the high-income threshold can opt out of being considered under the new definition.
• Sham contracting: Employers must provide a stronger defence when claiming they misrepresented an employee as an independent contractor.

Changes to casual staff

The FWO has also adjusted the definition of casual employment. Starting August 26, 2024, a casual employee will be someone without a firm advance commitment to continuing and indefinite work. Similarly to contractors, the FWO defines a casual employee based on the employment relationship’s practical reality and true nature. Casual employees should receive casual loading or a specific casual pay rate.

Additionally, the FWO will introduce new pathways for casual conversion. Employees can now request a shift to permanent employment after six months (for non-small business employers) or twelve months (for small business employers), provided they believe their employment no longer meets the casual definition. Employers must respond to such requests within 21 days, either accepting the conversion or giving valid reasons for refusal.

Given these changes, employers may consider using an Employer of Record when hiring casual staff to mitigate risks. An Employer of Record can handle compliance, payroll, and other HR responsibilities, ensuring adherence to new regulations and reducing the potential for legal issues.

Key points:

• New definition: From August 26, 2024, a casual employee is defined as someone without a firm advance commitment to continuing and indefinite work.
• New pathways for casual conversion: Employees can request a shift to permanent employment after six months (for non-small business employers) or twelve months (for small business employers).

Penalties for non-compliance with legislation

The FWO has increased the penalties for non-compliance. On February 27 2024, the maximum civil penalties for underpayments and sham contracting reached $469,500. For more severe breaches, penalties can rise to $4,696,000. For context on these penalties, in FY 2023, the Office of the Fair Work Ombudsman (OFWO) recovered $509 million from non-complying employers.

Additionally, intentional wage underpayments will be criminalised from January 1 2025, with fines reaching $7.825 million or three times the amount of the underpayment, whichever is greater, and up to ten years imprisonment for individuals. Employers must also adhere to the FWO’s new compliance notice requirements by providing accurate calculations and timely payments of any owed underpayments.

Key points:

• Civil penalties: The FWO has increased the civil penalties for underpayments.
• Criminal penalties: Severe consequences for intentional wage underpayments, including imprisonment.
• Compliance notices: New requirements for employers to accurately calculate and pay owed underpayments.

Conclusion

The Government often revisits Australia’s employment regulations, and keeping up with them is critical for Employers of Record. This year, the Government has introduced various changes to legislation, some of which have already come into effect and many that you must comply with from August 26 2024. Employers of Record that do not adhere to these changes will experience financial penalties and potentially imprisonment.

The new legislation will require organisations working with independent contractors and casual staff to understand any impacts on their business. Employers of Record can uphold their commitment to fair and lawful employment by staying ahead of these changes. Proactively adapting to new regulations ensures employers and employees benefit from a fair and transparent work environment. 

SDP Solutions provides Employer of Record services in Australia

Does your organisation need support managing independent contractors? Rather than handling the complexities of compliance and payment, allow SDP Solutions to take care of it. We act as the Employer of Record in Australia for labour hire staff, independent contractors, and 482 visa holders so that your organisation can focus on getting the work done without all of the back-office tasks. 

Please contact us for more information on how we can support you.