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”.
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.
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?
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.
- 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.
- 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?
One thought on “Qld’s Labour Hire Licensing Scheme: the “incorporated worker exception” – pass or fail?”
I don’t think there should be any exemptions to Labour Hire.
I do wish there was a better educational program to highlight the responsibilities of Labour Hire firms such as withholding taxes even from independent contractors, payroll tax and sham contracting arrangements (Independent Contractor myths).
This should have been advertised Australia wide as it is rampant in many industries and many don’t even know they are breaking the laws.