This is the second in a series of posts in which I examine the detail of the worker exceptions created by reg. 4 of Queensland’s Labour Hire Licensing Regulation 2018. In this post, I look at the “incorporated worker” exemption in reg. 4(1)(b) and invite you to consider whether it should be given a “pass” or “fail”.

Some background

In October last year, and in commentary about the coverage of the Act, I drew attention to the difficulties posed for micro-business, incorporated independent contractors. The specific difficulty that I foresaw was that, if the incorporated entity supplied its worker to another person to do work, then it would need a licence.

The issue was taken up in submissions to government about the content of the regulations; and specifically about whether an exemption from the need to hold a licence could be carved out, using the power granted under s. 8(2) of the Act to exclude classes of individuals from the definition of worker.

Such an exemption was possible on the basis that, if the provider supplied persons, who were not workers within the meaning of the Act, it followed that the provider did not provide labour hire services and therefore did not need a licence.

An exemption would have relieved hundreds, perhaps thousands, of small “incorporated workers”, who operate through their own corporate entities, from the need to hold a labour hire licence.

To its credit, the Government does seem to have accepted those submissions in part.

However, in my opinion, the incorporated worker exception created by regulation 4(1)(b) of Queensland’s Labour Hire Licensing Regulation 2018 is so narrow that it will not provide the relief most were hoping for; and may end up disadvantaging many incorporated workers and adding to an already excessive red tape burden.

The incorporated worker exception

Regulation 4(1) sets out four classes of individuals, who are excluded from the definition of worker under s.8.  Paragraph (b) of that regulation establishes the “incorporated worker” exception in terms:

(b) for a provider who is a corporation—an individual who is an executive officer of the corporation and the only individual the provider supplies, in the course of carrying on a business, to another person to do work;

Three key points

Three key points need to be noted about this provision.

Firstly, the exception, applies to a corporation that is (or, but for the exception, would be) a provider – i.e. the corporation that, in the course of carrying on a business, supplies, to another person, a worker to do work.

Secondly, for the individual to qualify for the exception, and for the provider to rely on the exception as a means of avoiding the need to hold a licence, the provider must supply only that individual and no other individual. If the corporation supplies another person, it will need a licence.

Note that the expression used is individual and not worker. That will mean that the exception cannot rely on the other reg.4 exceptions to reduce the number of supplied persons to one.

For example: You could not get around the one person requirement by saying, “Well, I do supply another person; but that person is not a “worker”, because I pay them annual wages above the high-income threshold”.

Thirdly, the individual, who is supplied, must be an executive officer of the corporation.

Who is an “executive officer”

An executive officer is defined in the Act to mean any person, by whatever name called and whether or not the person is a director of the corporation, who is concerned, or takes part, in the management of the corporation.

One-person corporations

So, we are really talking about a one-person corporation – or an “incorporated worker”.

These are the workers that are sometimes called “On-hired Contractors (Incorporated)” or “Pty Ltd Contractors”.

The exception does not apply to partnerships or to other unincorporated businesses; and it is not targeted at labour hire providers, who may be supplying more than one individual to perform work.

Is there a problem?

Yes.

One of the key indicators of a genuine independent contracting relationship is the ability for the contractor to delegate the work.

The one-person requirement means that the incorporated provider no longer has the power to delegate, because delegation would involve supplying a second individual to do the work.

Neither could the provider merely substitute another individual to do the work, because that also would involve supplying a second person.

Two problems flow from that.

1. The inability to delegate, or substitute, may greatly impede the capacity to perform the work – especially if the work involves roster or “on duty” cover arrangements, where professional and skilled trade workers may “stand in” for each other from time to time.
2. Removal of the power to delegate or substitute may result in the so-called “corporate veil” wearing so thin that incorporation may cease to offer much protection from liability and allegations of sham contracting.

Pass or fail?

Whilst the exception might assist some small incorporated contractors, it may prove to be too restrictive, and to be attended by too much risk, to be attractive as an escape route from the need to hold a licence.

At the same time, the exception will create a headache for non-exempt labour hire providers, because there may be a cohort of individuals, within their on-hire workforces, who are not workers and are therefore not to be included in the provider’s reports under s.31 of the Act. For those providers, the exception will only add to their already excessive red tape burden.

At the moment, and in its present form, I’d have to give it a fail.

What do you think?

Andrew C. Wood

Just days before its labour hire licensing scheme was due to start, Queensland finally released its labour hire licensing regulations. Although it consulted briefly on the content of the regulations, it did not consult on the drafting. That is a pity because some agencies are now looking at the regulatory exceptions to the definition of worker that are set out in regulation 4 and wondering if they are excused from the need to hold a licence.

In my opinion, opting not to seek a licence on the basis of a regulation 4 exception is a high-risk strategy. It is one that I doubt many risk-averse clients would be prepared to buy into – especially in view the high penalties and prison sentences that apply to dealing with an unlicensed provider.

This is the first of a series of posts in which I will break down the exceptions and show why they need to be handled with care.  In this post, we will look in detail at the high-income employee exception.

Subsequent posts will examine:

• the “incorporated worker” exception;
• the “secondee” exception; and
• the “internal labour hire” exception.

Some basics

First, let’s look at the basic structure of the legislative scheme that leads to regulatory exceptions being created.

1. Section 10 of Queensland’s Labour Hire Licensing Act 2017 (“LHLA(Q)”) makes it an offence to provide labour hire services without a licence.
2. Section 11 of the LHLA(Q) makes it an offence to acquire labour hire services from an unlicensed provider.
3. These provisions depend heavily on the definitions of provider, labour hire services and worker.
4. They also depend heavily on the definition of supply; but there is no definition for that. We will have to wait for the courts to tell us what supply means.
5. However, section 7(1) of the LHLA(Q) sets up the definitions of provider and labour hire services.
6. A provider is a person, who provides labour hire services.
7. A person provides labour hire services if, in the course of carrying on a business, the person supplies, to another person, a worker to do work.
8. Section 8 of the LHLA(Q) defines the term, worker.
9. An individual is a worker for a provider if the individual enters into an arrangement with the provider under which—
   • the provider may supply, to another person, the individual to do work; AND
   • the provider is obliged to pay the worker, in whole or part, for the work.
10. However, an individual is not a worker if the individual is, or is of a class of individual, prescribed by regulation. So, we must turn to the regulations.
11. Regulation 4 of Queensland’s Labour Hire Licensing Regulation 2018 (“the Regulations”) sets out four classes of individuals, who are excepted from the s.8 definition of worker.
12. Those individuals are not workers.
13. Because they are not workers, if the provider ONLY supplies those classes of individuals, then it has not supplied a worker and it should not need a licence – i.e. it has not provided labour hire services. That is because labour hire services necessarily involve the supply of a worker.
14. If the provider supplies (or ever wants to supply) other classes of individuals, who are workers, then it will need a licence.
15. If the provider supplies individuals, whom it thinks are not workers (but who really are workers because they are not exempt) and it did not have a licence, then it will have breached the prohibition against supplying labour hire services without a licence; AND its client will likely have breached the prohibition against acquiring labour hire services from an unlicensed provider.
16. Now a provider might already have a licence, because it has wanted to supply (non-exempt) workers.
17. When it gets to reporting time, it will need to distinguish its non-exempt workers from its exempt workers, because many of its s.31 and s.32 reporting obligations relate only to workers (as defined) – i.e. non-exempt workers.
18. So, to manage all this, providers need to have a thorough understanding of the scope of the Regulation 4 exceptions – and they are not as straight forward or benign as they might first appear!
19. Additionally, clients of providers need to have a high degree of confidence in their providers’ ability to work through the detail of the exception on which they are relying and to get it right!

The “high income employee” exception

Let’s break the high-income employee exception down and examine it with some interposed commentary in which I’ll make observations and pose a few questions for you to consider if you’re thinking about relying on this exception. Here it is, taken from regulation 4:

4. Individuals who are not workers—Act , s 8 

1.  For section 8 (2) of the Act, the following individuals are prescribed—

   (a)  an individual employed by a provider—

The exception relates only to individuals, who are employed by a provider:

• What if you are on-hiring an incorporated worker – the entity, rather than the individual?
• What if the individual is employed by someone else and you are merely an intermediary as contemplated by LHLA(Q) s. 7(2)?
• What if the individual is not employed; but is an independent contractor of yours, or works in some other capacity?

(i)  whose annual wages are equal to or more than the amount of the high-income threshold under the Fair Work Act 2009 (Cwlth), section 333; and

The threshold is set by reference to an amount of annual wages.

There are no pro rating provisions in the Regulations. The Regulations have only borrowed the threshold figure from s.333 of the Fair Work Act. They have not borrowed any of the FWA provisions that apply the threshold to part time work, or to work for a period of less than a year as a rate of earnings.

In any event, it turns out that wages are different from earnings, which is the expression used for the high-income threshold provisions of the Fair Work Act.

Although the term, annual wages is not defined, the term wages is. It has the meaning given in the Workers’ Compensation and Rehabilitation Act 2003 (Qld).

• What if your worker does not receive wages; but receives a distribution from a discretionary trust or partnership; or directors fees or dividends from an incorporated entity?
• What if your worker receives wages from other employers?
• Do you have the means to investigate those matters?

Wages and earnings include and exclude different things. For example,

• wages include overtime payments; earnings don’t – unless the overtime is “guaranteed”.
• wages exclude compulsory superannuation; earnings include it.
• wages exclude the value of non-monetary benefits; earnings include it.

There are other important disparities between the two expressions.

You might have a worker, who has the benefit of a high-income guarantee under the FWA; but who fails to meet the annual wages threshold under the Regulations; and vice versa.

• Have you identified all the components of annual wages that need to be taken into account or excluded in order to determine whether the annual wages threshold applies to each of your workers?
• Can you adjust for any allowances that are not expressly excluded by the Workers’ Compensation and Rehabilitation Act 2003 (Qld)? Do you know what they are?
• Can you say how the annual wages threshold applies at any given point in time before year end in relation to:
  • a part-time employee with agreed hours?
  • a part time employee with no agreed hours?
  • an employee receiving (or entitled to) overtime?
• Can you make an accurate conversion from the annual wages threshold to the hourly rate you are paying your worker (especially if you have structured it as an all-in rate)?
• Do you do your conversion on the basis of a 38 hour week, or on some other basis – e.g. the hours actually worked?
• How do you account for commissions, incentives and bonuses (both discretionary and non-discretionary)?

(ii)  other than under an industrial instrument under the Industrial Relations Act 2016 or a modern award or enterprise agreement under the Fair Work Act 2009 (Cwlth).

Employees, who are employed under any of these instruments do not fall within the range of the regulatory exception. So,

• Does employment in circumstances where a “jump up” clause applies to the employment constitute being employed under such an instrument?
• Have you accounted for the range of professional awards that may apply to the employment? Some of the Modern Awards for professionals and other high income occupations or classifications that could bear upon your calculations could be:
  • Health Professionals and Support Services Award 2010
  • Higher Education Industry—Academic Staff—Award 2010
  • Medical Practitioners Award 2010
  • Nurses Award 2010
  • Professional Diving Industry (Industrial) Award 2010
  • Professional Employees Award 2010

There are others.

As you will quickly see, the failure to deal with these matters by including proper machinery provisions in the regulations has left providers (and their clients) dangerously exposed, if they choose to rely on them.In many cases, they will create false comfort and only the illusion of exemption.

Safe to assume?

Is it safe to assume that the Queensland Government would apply the machinery provisions of the Fair Work Act in order to make some sense of all this?

It might try to. It might even say that it intended to. But, in my opinion, the drafting of this regulation has not lived up to the intent. One can’t put in what the Government left out!

Common sense?

Is it safe to assume that a Court would adopt a “common sense” view of the Regulations and “write in” all the missing features that might help get a labour hire provider “across the line”?

In my opinion, it is not. It is more likely that a Court would say that the Regulation, in its current form, lacks the necessary machinery to make it fully workable. In that respect, legislative drafting is a bit like software coding – there might have been a lot of common sense in having something included; but unless it has been written into the program, it’s not going to work as intended.

A “commercial” approach?

Is it safe to assume that clients will accept an unlicensed provider’s (self-serving) interpretation of the Regulations; and that they will accept, without question, that every worker whom the provider on-hires – whether to that client or someone else – receives the annual wages threshold, such that the provider does not need a licence?

I doubt it.

What’s more, I doubt that it’s terribly “commercial” for a provider to place itself on a path, where it can only ever supply exempt workers; and set itself up to have to jump through the application hoops sometime down the track, when it does want to supply a non-exempt worker, and has to explain to the regulator how it’s been operating up to that point.

I doubt that clients, who are sophisticated enough to require the services of high-income employees will consider it an attractive commercial proposition to seek supply from an unlicensed provider, when there are properly licensed providers in the market.

And I don’t know how “commercial” it will be for national and inter-state providers to rely on an exemption that only operates in Queensland and not in South Australia.

It looks to me like the regulatory exception for employees, who earn above the high-income wages threshold does little more than open a can of worms.

What do you think?

Andrew C. Wood