With Queensland’s Labour Hire Licensing Act 2017 set to commence on 16th April 2018, and South Australia’s even earlier on 1 March 2018, it would be worthwhile for agencies, who on-hire incorporated independent contractors, to review their contractor arrangements to see how they might be affected.
Provider of labour hire services
It has been assumed that, in a traditional tripartite arrangement, the agency is the party who enters into a commercial arrangement to supply a worker to a client. That’s reflected in the definition of labour hire services provider contained in s. 7 (1) of the Qld Act.
“A person (a provider) provides labour hire services if, in the course of carrying on a business, the person supplies, to another person, a worker to do work.”
South Australia’s equivalent provision is similar in its focus on the supply of a worker to another person.
Application to incorporated independent contractors
But those provisions are just as capable of applying to incorporated independent contractor entities that supply their nominated workers to the agencies, or at the agency’s direction, to the agency’s clients.
These are the type of contractors that, in APSCo’s taxonomy, are referred to as “Pty Ltd Contractors” and described –
“An independent contractor that is an incorporated company, which employs an individual to perform services and supplies them to an end user client. Alternatively, a third party company may act as the incorporated entity structure (i.e. payroll service provider). The company is responsible for the individual’s superannuation, tax and any insurances (as applicable and agreed between the parties).”
A question immediately arises as to whether the pronoun, them, refers to the individual or to the services.
If the reference is to the individual, then the APSCo definition seems pretty clearly to contemplate that, in the course of carrying on its business, a Pty Ltd Contractor supplies workers to another person to perform work.
If that supply comes within the meaning of “supply” as it is used in the Act, then it would seem to follow that the Pty Ltd Contractor is a provider of labour hire services and requires to be licensed.
Risk of offence if no licence
It would also seem follow that the agency that acquires the services of a Pty Ltd Contractor may commit an offence (Person must not enter into arrangements with unlicensed providers), if the Pty Ltd Contractor does not hold a labour hire provider’s licence granted under the relevant Act and is not exempt.
If, instead of referring to the workers, the pronoun them refers to the services, it will still be necessary to examine the arrangements under which the services are performed in order to determine whether they are performed by the individual working in the end-user’s business. If that is the case, there may be a supply of a worker to the end-user and the Pty Ltd Company would need to be licensed, as would the agency.
In RCSA’s taxonomy these workers are referred to as “On-hire Contractors (Incorporated)” and described –
“An individual independent contractor engaged as an employee of a company which is typically controlled by the same individual as a sole or joint Director. There are examples where the individual will be an employee of a larger, multiple employee, company where the company nominates a key person for the completion of the work on assignment.”
The RCSA definition of On-hire Contractors (Incorporated) does not use supply terminology. Instead, it uses the terminology of “nomination” often associated with one of the key tests of a genuine independent contracting relationship – namely the power to delegate.
However, it may amount to the same thing as a supply if the nomination results in an individual’s services being provided “to help the client conduct its business in the same way, or much the same way, as it would through an employee”.[i]
Risk of offence
In that case, the incorporated entity, in the course of its business, is likely to be supplying its nominated person to the end user and therefore required to be licensed.
Once again, there would be a similar risk of committing the offence if the agency secures the services of On-hire Contractors (Incorporated) that are not licensed under the Act.
Industry definitions not determinative
Of course, neither the RCSA definition nor the APSCo definition is determinative of the question that needs to be asked. They simply represent attempts, from within the industry, to describe a common work model. To that extent, they both provide useful insights that may help agencies to analyse more closely the arrangements that they have with this class of workers and determine the extent to which the licensing requirements of the Act will need to be met.
The problem stems not from the RCSA definition, nor from the APSCo definition, but rather from the largely unexplored and unintended consequences of the Acts.
If the Acts do apply in the way their coverage provisions suggest they might, the administrative consequences – understood in terms of the cost and effort of administering a scheme that requires incorporated independent contractors to be licensed – are enormous and have been greatly under estimated.
A regulatory solution
One simple solution might be to exempt this particular class of worker (or provider) by regulations made under the Acts.
However, one difficulty with the Queensland Act is that it might not be available unless the supply of a worker by the incorporated entity is not a dominant purpose of the business ordinarily carried on by it. That might not be so easy to establish, given the type of entity that we are discussing.
Need to examine contractual arrangements
One further issue, which agencies will need to look at closely, concerns the contractual arrangements that exist between the agency, the worker, and the worker’s incorporated entity.
It will be vitally important to correctly identify whether it is the agency, the worker or the worker’s incorporated entity that is providing the substantial services – be they IT services, event planning services, design services, project management services, etc – to the client.
This may not always be clear, or accurately reflected, in the documentation that exists to support those contractual arrangements – if, indeed, any documentation exists at all.
Need to examine payment “obligations” between incorporated entity and worker
Finally, given the restricted definition of worker contained in both Acts, it may also be necessary for agencies to examine closely the arrangements between the incorporated entity and the worker, which give rise to any obligation on the part of the incorporated entity to pay the worker, in whole or in part, for the work.
In that respect, it may become important to be able to distinguish payments made by the incorporated entity to the worker for the work from shareholder dividends, trust distributions or other remuneration that is not so clearly “for the work”.
Again, there may be limited documentation – and what documentation there is between the incorporated entity and its nominee may be inaccurate or unclear. In many instances, it might not be the sort of documentation that would usually be provided to agencies – though there may now be some incentive to ask for it!
Time is running
These are just some of the issues that agencies who work in this space will need to consider and resolve in the six months or so that remain before the legislation commences.
Given the number of contractors potentially involved and the variety of the arrangements under which they may work, that is not a very long time.
Andrew C. Wood
[i] For a discussion of this point see Wood, AC, H.R. & Recruiters’ Casebook, Lessons for Labour Hire Providers: JP Property Services Pty Ltd v Chief Commissioner of State Revenue (2017) 21 October 2017 https://recruiterscasebook.com/2017/10/21/lessons-for-labour-hire-providers-jp-property-services-pty-ltd-v-chief-commissioner-of-state-revenue-2017/