Know Your Obligations as an Employer or Pay the Penalty

By Paul Slezak - Aug. 14, 2012
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contractor, contractor contract, contractor management, casual employee rights, casual employee definition, what is a fixed term contract, permanent employee, the people department, hr, human resources, SMEEditors Note: This is a guest post written by Sam Baker, a cofounder of The People Department. Her opinions are her own.

This is Sue, she’s our new casual full-time contractor …” (huh?)

OK, we know that not everyone is as taken by employment law as we are, but it’s still important to know the basis on which you’re engaging people to work for you so that you treat them appropriately (and legally) in the workplace, and avoid potentially sticky and costly situations down the track.

Case study – retail casual

Annabelle has worked for ABC Electronics for six months as a casual. She started working irregular shifts to cover sickness and holidays. Over time, her shifts have become more regular and she works almost the same roster of 30 hours every fortnight with some changes every now and then. Another permanent employee has recently asked for more hours so the manager has increased their hours and told Annabelle they’ll call her if she’s needed from the following week.

Annabelle can claim that she was a permanent employee and that this was an unfair dismissal given that she can show a regular and consistent work pattern over a number of months and that the work that she was doing is still needed as someone else is doing it. We think she has a good chance of winning.

ABC Electronics could have avoided this if they had reviewed Annabelle’s status once her shifts became regular and, depending on any other relevant facts, made her a permanent part-time employee (or put her on a fixed-term if they had cause to believe that business conditions may change rapidly).

Or this example …

Case study – professional contractor

Hamish was employed by Sun Systems as a contractor along with 4 others to work on a 6 month project as a Developer; an arrangement he was very happy with. Hamish invoiced for his hours weekly but it was always for the same amount as agreed with his manager, even if he worked slightly longer hours some weeks. The project was delayed so his contract was extended to meet the new deadline. He worked full-time in Sun’s offices, on their equipment and wasn’t replaced when he went on a 3-week holiday.

The ATO conducted an audit of Sun Systems and said that Sun was attempting to avoid their obligations as an employer. They were fined for this for all 5 contractors and made to back pay payroll tax and superannuation as it was not specified in their contracts (provided by Sun), who bore that cost. Sun also had to make an accrual for annual leave which sent the IT department over-budget even further.

It is very easy to let a contractor become a de facto employee and it can happen in a matter of a few months.

“But our needs have changed”

It’s understandable that your needs may change or if the way someone was first brought into the business is no longer applicable. But you should then review their terms when the business or the project requirements change.

“I don’t know what everyone’s doing all the time!”

This is a great responsibility to devolve to your line managers. Brief them on the issues and make it their responsibility to report back to you when things change. Given the high risks of costly back pay claims or the reputational damage and cost of legal proceedings, it makes sense to review this as part of your regular business cycle.

Glossary of terms

Here’s a ‘cheat sheet’ which will help you understand the different ‘worker types’ and your associated obligations as an employer. It’s certainly worth a read.

Please note that the information in this post does not constitute legal advice and should not be relied upon as such. The People Department does not accept liability for any loss or damage that may arise from any such reliance.


Sam Baker is one of the cofounders at  The People Department – a boutique Human Resources consultancy. With qualifications in HR, Business, Employment Relations and Training & Assessment her HR experience includes the nuts and bolts of managing day-to-day HR operations and performance issues but also encompasses national enterprise agreements, regional reward and recognition programs, national training programs, large-scale re-structures, M&A and change management initiatives.

Cofounder and CEO at RecruitLoop. I've been a hands on recruiter, manager, trainer, coach, mentor, and regular speaker for the recruitment industry for nearly 25 years.


Paul Slezak

Cofounder and CEO at RecruitLoop. I've been a hands on recruiter, manager, trainer, coach, mentor, and regular speaker for the recruitment industry for nearly 25 years.

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