Employer of Record Arrangements: Not the panacea you were hoping for?

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Recently, I was asked to comment on how an employer-of-record (EoR) arrangement might affect an on-hire firm’s employment and labour hire licensing responsibilities. It seems that there’s a bit of a view circulating to the effect that, if you put in place one of these EoR arrangements with a payroll company, you can avoid both sets of responsibilities. Frankly, I doubt that you can.

And if you try to do so, I think you could end up with egg on your face… or worse still, with residual employment obligations (for tax, super, redundancy, unfair dismissal and the like), as well as leaving yourself open to a range of claims for anything from involvement in misleading conduct in respect of an offer of employment[i] all the way through to sham contracting and labour hire licence avoidance.

Employer of Record (EoR)

Firstly, let’s clarify what I mean by an EoR.

Corporate Groupings

An EoR is a third party that appears “on the record” as the employer of your workers. It’s a common arrangement within corporate groups of related entities. One entity in the group will go “on record” as employer for workers in the group.  It will handle payroll and will probably be the named employer in the employment contract. It will issue pay slips and pay summaries and remit tax and super.  These arrangements are often unravelled in insolvency proceedings, where group entities that thought they were shielded from employer responsibilities can be left having to pay up.

Payroll Services Providers

It’s also a common feature of many arrangements made by on-hire firms for the appointment of a payroll services provider. The contract of appointment might even include the individual worker as a party and might go to considerable lengths to insist that the payroll company must employ the individual. I’ll talk some more about those contracts (and some of their common flaws) in a later post on the topic.

Incorporated Worker Entities (IWEs)

You can also encounter aspects of employer-of-record issues when you’re dealing with a worker owned and controlled through which the worker operates. 

We’re talking, here, about those entities that are effectively the alter ego of the individual who actually performs the work.  Usually, the entity is engaged to provide the required services (e.g., ITC services) and it is left to the entity to employ or engage the individual worker.

If that’s the arrangement you’re working with, you’d want to make pretty sure that the IWE has employed the individual and that the terms of the employment are comprehensively set out in a written contract between the IWE and the worker. Otherwise, you might find that any looseness or uncertainty, or any mistake about the form of contract used, opens the door to an inquiry about whether you, in fact, might be the employer.

We’ve now looked briefly at three different arrangements under which a third party might be identified as the EoR, and we’ve looked at the sort of things that the EoR might be doing.

But, for present purposes, none of that means that the EoR is necessarily the true employer.

The True Employer and How To Find It

The true employer will be the entity which, on an examination of the totality of the relationship, actually controls the work relationship. 

Now, you’re probably going to say that the Golden Trio of recent High Court Cases[ii] put an end to the multi-factor/ totality of the relationship test, and that we can only now have regard to the terms of the contract. 

Well, that is mostly true … if we’re trying to decide if a worker is an employee or an independent contractor – that is to say, if were trying to decide the work status question.  

But it seems it may not be true if we’re trying to answer the different question of who is the employer – the employer identity question.  At least, that’s what the NSW Supreme Court recently said in Spitfire Corp.[iii]

And it seems that the FWC is now finding reasons to distinguish the Golden Trio Cases – even on the work status question.[iv] So, unless your contract is wholly in writing, pretty tight, not a sham, and not unsuited to the use to which you’ve put it, you might still find yourself having to answer some embarrassing questions about how your relationship actually works.

A Panacea?

Taking all this into account, can we be confident that entering into an EoR arrangement with a related entity, a payroll provider, or an Incorporated Worker Entity will relieve an on-hire provider from its employer or labour hire responsibilities.

I don’t think we can. That’s my take on it.

But you can make your own mind up about that!

Andrew C. Wood


[i] Australian Consumer Law s. 31.

[ii] WorkPac Pty Ltd v Rossato (2021) 95 ALJR 681; [2021] HCA 23 (“Workpac”); Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2022] HCA 1 (“Personnel Contracting”); ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2 (“ZG Operations”).

[iii] In the matter of Spitfire Corporation Limited (in liq.) and Aspirio Pty Ltd (in liq) [2022] NSWSC 340 (“Spitfire Corp”).

[iv] See Waring v Hage Retail Pty Ltd [2022] FWC 540, where, at paras [52] to [56] Deputy President Anderson summarized the principles in the High Court’s decisions in Personnel Contracting and ZG Operations. DP Anderson’s summary was subsequently cited with approval by the Full Bench in Azad v Hammond Park Family Practice Pty Ltd T/A Jupiter Health Warnbro [2022] FWCFB 66 at para [14]. Hage Retail is noteworthy because of the way in which DP Anderson applied the legal principles to the facts of that case in order to find scope to conduct an inquiry which extended well beyond the strict terms of what purported to be the employment contract.

Labour Hire Licensing & Payroll Providers: A simplified or simplistic explanation?

A female temp desk consultant looking over some documents, whilst discussing an assignment with her labour hire worker.The worker is wearing hi vis jacket , and their safety clothing is scattered about the office.

Discussion of the topic, “Who needs a labour hire licence” often gets diverted by red herring issues about whether a payroll provider is the employer, or at least the employer-of-record, and whether the worker is an employee or not.

My simplified or perhaps simplistic explanation of the licensing schemes is that, regardless of whether you are an on-hire firm or a payroll provider, you’ll need a licence if:

  • you have an arrangement with an individual to supply the individual perform work for someone else;
  • the individual qualifies as one of your “workers” (as defined); AND
  • your arrangement with the individual includes an obligation to pay the worker for the work.

This is what we call having a labour hire “supply arrangement”.

There are some subtle variations between the four existing state and territory schemes. There are also additional circumstances in which you might need a licence in Victoria.

Now, some payroll providers do have such an arrangement; others don’t.

Payroll providers which do have such an arrangement with a worker would seem to need a licence.

Those which don’t would not seem to require a licence. Indeed, I’m aware that this is a view that has been confirmed by at least one scheme regulator and that some payroll providers may be in a position to provide regulator confirmation that they do not require a licence. Of course, it’s always important to make sure that you fully understand the facts and circumstances on which that confirmation is given. Don’t assume that one-size-fits-all in this space.

The fact that a payroll provider, which has such an arrangement, requires a licence will not necessarily relieve the on-hire firm that appoints the payroll provider from having a licence as well.

It won’t matter whether the individual is an employee of the person who has the arrangement or not.

The supply of the worker can be direct or indirect; and it needn’t be contractual.

And if the arrangement needn’t be contractual, then it would seem to follow that the payment obligation needn’t be contractual either. Perhaps a moral or equitable obligation, arising from representations or a loose understanding, would suffice.

So, it would seem to make no difference to the licensing requirement whether the payroll provider is the employer or not.

The focus of the inquiry is always on identifying the presence of the labour hire supply arrangement/s. The involvement of multiple parties: typically, on-hire firms, payroll providers, and incorporated worker entities (IWEs) just makes the inquiry that little bit more difficult.

I’ll say something more about contracts with IWEs in a later post. That’s a whole other story!

Andrew C. Wood

A National Labour Hire Scheme … Really?

If anyone is talking to you about a national labour hire licensing scheme, just ask them what they would do with the four current state and territory schemes.

Perhaps the only justification for visiting the regulatory burden of a another licensing scheme on the Australian labour market would be that it might pave the way to dismantle the four existing schemes – at least in part. One set of regulatory burdens in place of four. Maybe that could be justified. But can you see anyone actually doing it?

And even if it could be achieved, what would stop the states and territories from retaining local schemes to licence labour hire supply to their own public sectors, which are substantial users of labour hire services – though some of them might not like to admit it.

Those with longer memories might recall the measures that were included in the intergovernmental Competition Principles Agreement to encourage the dismantling of anti-competitive state licensing schemes during the Hilmer reform era. Perhaps that’s a history that should be revisited.

Andrew C. Wood

Professional Applicant Screening: Always Check for Conditions

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A recent NCAT decision in the Health Care Complaints Commission’s proceedings against an Enrolled Nurse (2021/00171685) should serve as a reminder to staffing and recruitment professionals of the importance of conducting thorough inquiries into nurse registration conditions when screening job applicants.

Background

A candidate, who completed a qualification as an Enrolled Nurse in South Africa in 2004, was first registered in South Australia as an Enrolled Nurse in 2009. In 2016, she moved from South Australia to New South Wales, where her registration under the National Law was subjected to conditions imposed by the Nursing and Midwifery Council of NSW (“the NSW Council”).

The Conditions

In summary, the relevant conditions were:

  1. Administer medications only under direct supervision.
  2. Must be supervised by a Nurse Manager who has been informed of conditions.
  3. Must inform all current and future employers of conditions.
  4. Must only be employed in circumstances where the employer has agreed to notify the Council of any breach of conditions.

The Private Hospital Placements

The candidate obtained a position as an Enrolled Nurse at a private hospital, which provided sub-acute healthcare services, having previously worked there as a temp agency nurse. The evidence suggested that the private hospital was not aware of the conditions when it employed her; or, if it was aware, did not follow through.

The candidate gave evidence that she was approached by the private hospital manager to join the hospital because the manager saw her performance at work while she was working as an agency nurse. She never went through any interview, except to be asked to bring relevant documents which she did. She said that she never said anything about her registration because she was aware that companies were not employing nurses whose registration was subject to conditions.

Her employment was subsequently terminated after the hospital became aware of the conditions.

The Respite Facility Placement

The candidate thereafter applied, through a different recruitment agency, for a position as a Medically Enrolled Nurse with a facility, which offered short term accommodation and respite for people with an intellectual disability, high physical support and/or complex health needs.

The evidence indicated that she did not disclose the registration conditions to either the new recruitment agency or to the respite facility, neither of whom seem to have been aware of them.  

Having successfully obtained the position, she undertook various duties unsupervised, including performance of tracheostomy management.

The Tribunal Proceedings

In proceedings against her by the NSW Council for unsatisfactory professional conduct and professional misconduct arising from breach of conditions, the Tribunal held that her conduct constituted “a flagrant disregard for [her] obligations … and a serious risk to the public”.

The Tribunal ordered that the EN’s registration be cancelled, and that she not be permitted to apply for review of the cancellation for a period of two years.

Observations

The outcome, of course, was a very unhappy outcome for the EN.  

However, what is of equal concern is that the staffing and recruitment agencies, the private hospital, and the respite facility all seem to have been unaware of the conditions that attached to the EN’s registration. It would surely have been easy enough to have checked. They were fortunate, perhaps, to have escaped adverse comment.

The case highlights the importance of developing and monitoring rigorous and reliable controls to ensure that applicants and candidates are thoroughly screened – not only in terms of their having current vaccinations and work entitlements; but also in terms of ascertaining any limiting or disqualifying aspects that could adversely impact the candidate’s suitability. It also higlights the need to follow through if your inquiries do reveal the presence of conditions.

It is no longer satisfactory (if it ever was), in this writer’s opinion, for staffing and recruitment professionals to occupy an all-care-no-responsibility stance, when the care fails to identify what may prove to be “a flagrant disregard for [the candidate’s] obligations … and a serious risk to the public”.

But you can make your own mind up about that.

Andrew C. Wood