Key legislative shifts impacting independent contractors and casual staff

Written by: Raj Sesha Founder, SDP Solutions

Earlier this year, the Fair Work Ombudsman (FWO) announced several changes to employment regulations for independent contractors and casual staff. Most of these changes came into effect on August 26, 2024, and aim to create fairer and more transparent employment practices, address current gaps in the law, and meet the needs of today’s workplaces. SDP Solutions explains.

Changes for independent contractors

New definition of an independent contractor: Rather than focus on the terms of a contract, the test to determine whether someone is an independent contractor relies on how that person performs the contract. These changes include the working relationship's practical reality and true nature rather than relying on written contracts.

Opting out of the new definition:

Contractors earning more than the high-income threshold can opt out of being considered under the new definition. The employer can let them opt out, and the contractor can then choose to continue the current relationship.

New defences for sham contracting:

Amendments to the sham contracting defence (which came into effect on February 27, 2024) mean employers must now prove they reasonably believed a worker was a contractor at the time of engagement to avoid penalties for misclassification.

The previous defence has been replaced, whereby employers needed to prove they did not know and were not reckless regarding the employment status.

Now, employers must demonstrate a ‘reasonable belief that an independent contractor arrangement was appropriate at the time of engagement.

Changes to casual staff

New definition: A casual employee is now someone without a firm advance commitment to continuing and indefinite work.

Similarly to contractors, the FWO defines a casual employee based on the employment relationship's practical reality and true nature.

Casual employees should receive casual loading or a specific casual pay rate

New pathways for casual conversation:

The FWO has introduced new pathways for casual conversion. Emplyees can now request a shift to permanent employment after six months (for non-small business employers) or twelve months (for small business employers), provided they believe their employment no longer meets the casual definition.

Employers must respond to such requests within 21 days, either accepting the conversion or giving valid reasons for refusal.

Given these changes, employers may consider using an Employer of Record when hiring independent contractors or casual staff to mitigate risks.

An Employer of Record can handle compliance, payroll, and other HR responsibilities, ensuring adherence to new regulations and reducing the potential for legal issues.