Self Employed Australia

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“Everyone needs an Advocate”

Defining Self-employment

ATO breakthrough on worker classification

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worker-classificationOne of the most controversial and confusing issues for tax and labour law over the last 50 years is whether a worker is an employee or self-employed.

In February 2022, the Australian High Court released a ruling that establishes major clarity in the law on this issue. We referenced and summarised the ‘Personnel’ decision in August 2022. We included links for SEA members to:

New ATO rulings

Now the Australian Taxation Office has released new rulings (just before Christmas 2022) on the employee vs self-employed issue, based on the clarity established by the High Court in ‘Personnel.’ We consider the ATO rulings to be outstanding, providing explanation in clear lay language.

We think the ATO rulings are necessary reading for accountants, human resources and industrial relations managers, lawyers (yes!) and anyone needing clarity on worker status in Australia. This particularly includes self-employed people. There are two rulings:

The rulings we supply (for members) include highlights to assist understanding.

Employee or self-employed – Overview of ATO Ruling D3

We will provide a summary/commentary on the employee or self-employed (D3) ruling shortly. But in brief:

  • If a written contract is comprehensive and clear, it stands as the determinator of worker status.
  • If there is no written contract, or a contract is unclear etc., the standard ‘multifactorial’ test applies with the ‘totality’ of the relationship providing the answer.

Worker status – compliance with obligations – Overview of ATO Ruling D5

The ATO has a need to define worker status to ensure community compliance with:

  • PAYG – that is, determining who has responsibility to send income tax withholding payments to the ATO – the worker or the engaging entity?
  • Superannuation – that is, whether an engaging entity must make superannuation payments for a worker.

The ruling on this sets up a simple matrix which explains when the ATO will investigate. This depends on whether the compliance behaviour of the parties is deemed to be very low, low, medium or high-risk. These are explained clearly in the (D5) ruling.

Frankly, we think that anyone who allows their business to fall into the medium or high-risk areas is foolish and asking for trouble.

Non ATO tax issues – helpful but some caution needed

Even though the D3 ruling (employee or self-employed) is ATO-specific, it has strong practical application to other areas, such as definitions for workplace relations. (Note. The ATO is careful to state that the ruling is ATO/Tax/Super-specific only)

However, the law that the ATO must apply on PAYG/Superannuation is exactly the same law (at first instance) that applies to workplace relations—that is, the ‘standard’ or ‘common law’ definitions as declared by the High Court. Given that, in our view, the ATO ruling (D3) is so clearly written in layperson’s language, it is likely to prove very helpful for other areas such as workplace relations.

Even though the same helpfulness applies for workers’ compensation, OHS and payroll tax (all state issues), considerable care should be taken where these laws extend their reach to some types of independent contractors/self-employed. These ‘extension’ laws vary from state to state and are not the same as the ATO’s ‘extension’ laws.

Conclusion – Congratulations to the ATO

We consider these ATO rulings to be a major step forward. The best tax systems maximise voluntary compliance by taxpayers. This cannot occur where the rules are confused or badly explained. On this issue the ATO rulings generate considerable clarity. We recommend that our SEA members take the time to read these rulings. They are not onerous reading and quite clear.

ATO Small Business Debt: Patience Needed

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patienceThe Australian Taxation Office views small business tax debt as a major problem. The ATO says that small business debt is two-thirds of the $37 billion owed to the ATO—in other words, $24 billion.

Fortunately, the ATO does recognise that much of existing small business debt is the direct result of huge losses small business people suffered due to Covid lockdowns and restrictions. The ATO is showing some understanding. But we hope that the understanding is sufficient and that it will ‘stay the course’. Here’s one story that demonstrates the ‘Covid business disaster’ experienced by (at least) tens of thousands of self-employed people.

I had a chat the other day with a single mum who’s been running her own small business for about six years. She rents a commercial space that’s critical for her particular business. Things were going reasonably well and in 2019 she needed to move from one premises to another. She spent quite a bit of money upgrading the new premises, moved in and business was looking up. Then Covid hit in early 2020.

During the entire Covid lockdowns of 2020–21 the rules meant that she was prohibited from operating at all. Income dropped to zero. Yes, zero! She’d signed a five-year lease and had a bank mortgage. In early 2022 she could start operating again. But the loyal customers she had built up had drifted away. She’s had to rebuild, and although things are looking better, they are not yet back to pre-Covid (2019) levels.

She owes money to the ATO related to her pre-Covid trading. The ATO (fortunately) has her on a payment plan. She’s been very upfront with the ATO. But she’s still needing to cover her mortgage payments plus pay the rent on her premises. If she loses the premises, she’s out of business.

She talked to me about the struggle. I really don’t know if she can survive. She’s a self-motivated, positive, ‘go getter’. But my words of encouragement and support are just words and don’t cover the bills. She’s the sort of person who is most likely to battle through and, give her several years, get on top of the mess and start to make a profit again.

This lady is just one typical story. The economic pain of Covid has impacted the most vulnerable in our community—the ‘go getter’ small business individuals.

We hope that the ATO maintains its small business patience and support. But this needs to happen on a case-by-case basis, with high quality ATO communication and realistic assessments of individuals’ circumstances. It will be a long haul over several years. This is the economic ‘long Covid’.

Victorian Labor promises to destroy gig work and self-employment

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destroy-gig-workIn late October this year the Victorian Labor Government announced new gig laws it intends to introduce. The promised laws have all the nice-sounding language of ‘rights’ for gig self-employed people, but in fact the laws amount to a stripping of rights.

We’ve seen this sort of cunning stuff before. In California, in 2020, new laws came into effect that outlawed the use of self-employed people. That is, the structure of the laws didn’t ban people being their own boss. But by making it illegal to use self-employed people, California destroyed the incomes of people who worked as their own boss.

The promised Victorian Labor laws would perform a similar underhand trick. Effectively the laws would impose huge union control and centralised regulation over gig platforms, thereby destroying their business models. The platforms would become unprofitable and be forced to leave Victoria.

This is why Deliveroo recently closed in Australia. They’d done deals with unions that made their business unviable. Close down was the answer!

And who suffers? Yep, you got it. It’s the thousands of self-employed people—try students, retirees and the rest—who use gig platforms to top up their income. Only 0.19 percent of gig workers use gig for their full-time work. Everyone else uses gig for income top-up.

The promised Victorian Labor law is a business destroyer. It’s a policy that says that Labor despises people who work as their own boss, working when they want to work. It’s a policy of hate toward small business people.

We saw this before in Victoria when, around 2017, the Victorian Labor Government forced the breaking of the contracts of hundreds of self-employed cleaners who had direct contracts to clean schools. Labor forced these ‘own boss’ cleaners out of business and handed the contracts to big business. Cleaners were forced to become union members or have no work.

The promised Victorian Labor gig destruction laws would:

  • Force gig platforms into industrial-style ‘negotiations’ over how they manage their business and what the terms of their contracts are. This process would give unions power over gig platforms and gig workers.
  • Force gig platforms to change their contracts.
  • Destroy the entire concept and practice of ‘offer and acceptance of contract’ which is the core fundamental of commercial activity.
  • Impose pay rates.

And more.

In effect, self-employed gig people would retain their theoretical ‘right’ to be self-employed. But gig work and income would simply disappear. This is a Labor policy that attacks the ability of low-income people to find income through being their own boss. It’s pretty disgusting!

This commentary should in no way be construed or taken as an endorsement (or otherwise) of any political candidate or party or as a suggestion as to how anyone should vote or not vote at the 26 November Victorian state election. 

Government report: Don’t destroy self-employed gig workers. We agree

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report-gigDespite the Albanese government’s description of self-employed ‘gig’ work as a ‘cancer’, a recent government report (interim) says that such work and workers should not be ‘stymied’. We totally agree and have made a supporting submission.

The Productivity Commission is a high-powered federal government economic research think-tank. What it says is important.

In its (interim) report it studies and makes recommendations on the gig/platform economy. It says:

Regulation should evolve to meet the workplace relations challenge of innovative new business models, without stymying their potential contributions to productivity.

This is a heap of common sense. We hope the Albanese government takes note. Don’t throw the baby out with the bathwater!!

Our submission makes key points of fact.

There’s no confusion between an employee and a self-employed person:

  • An employee earns income through the employment contract.
  • A self-employed (independent contractor) person earns income through the commercial contract.

This legal fact is supported by research conducted by the International Labour Organisation and by international standards to which Australia is a signatory. Like the Productivity Commission, the ILO says:

National policy for protection of workers in an employment relationship should not interfere with true civil and commercial relationships…

We say that employment-structured firms are under competitive threat from gig/platforms and self-employed people. These firms are marshalling their well-entrenched political power to stop or limit the competition for power. This explains the ‘third way’ push which is on the Albanese government’s agenda.

The ‘third way’ push is highly dangerous. It has been rejected by the ILO and is causing great harm in the UK, for example. We explain this in our submission.

We also say that self-employed people are entitled to ‘protections’ but through commercial regulation not employment regulation. For example, protections are already available under laws covering unfair contracts, work safety, collective bargaining (under competition rules), minimum rates guarantees and dispute resolution.

But there is urgent need to reform the workers’ compensation schemes, for example, to allow individual self-employed people to register directly with the schemes without being forced into ‘employment’. Currently, self-employed people are banned from workers’ compensation, a glaring discrimination.

We explain these issues and more in our submission.

To gig or not to gig. Is that the question?

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pub-gigIf you’ve ever been to a pub gig, you’ll have taken part in what the Albanese government wants to (effectively) close down. The Albanese agenda is starkly clear after Workplace Relations Minister Tony Burke declared the ‘gig economy’ is a ‘cancer’.

Here’s a simple example of why we strongly oppose the Albanese/Burke agenda.

The gig economy is not something new. The Stones, Cold Chisel, AC/DC all did and/or do ‘gigs’. Gig is the contractual lifeblood of the entertainment industry locally and globally.

A gig is pretty simple. There’s a contract for a set price to do something. “Come to my pub. Play for three hours and I’ll pay you a thousand bucks”, says the pub manager. “Done”, says the singer. The singing done and the money paid. End of contract.

Somehow, for the Albanese government this is a ‘cancer’.

However, this familiar entertainment industry ‘gig’ model has taken new forms. Now gig work is available for ride-share, food delivery, aged and disability care, and odd jobs. The list goes on. And, yes, the entertainment industry has gig platforms. Gigsmash is but one.

What’s happened is that online technology has made gig work secure. Gig platforms enable anyone wanting to do a job to connect with someone needing a job done. The revolution is that job specifics and price are upfront and agreed by the parties. The gig platforms also make the payments and enable both the ‘doer’ and the ‘receiver’ of the service to rate each other.

It’s fantastic. The risk of not being paid is massively reduced. Think of how many times a pub manager has failed to pay the full amount agreed, screwing over the worker (singer)? It’s the security of payment and security and clarity of the gig work agreement that’s made this expansion of gig work so seemingly popular. And it’s all happened without government sticking its nose in!

But Minister Burke has promised to create laws that will require gig workers to have holiday pay as one eample.

So the pub manager will have to pay holiday pay on top of the $1,000 agreed. How is this to be calculated? Holiday pay is for full-time employees who’ve worked a full year. How is this to be calculated for 3 hours work and no more? Ouch! That has heads scratching! But let’s say it’s $10. It’s clear what will happen. The pub manager will only agree to $990 for the gig. $10 will have to be held back.

But when does the gig singer get the $10? Does the singer determine when it’s ‘holiday’ time or does the pub manager decide? Sounds like a recipe for scamming! So will Albanese/Burke then set up a massive new government-run department to manage gig workers’ holiday pay? Will the singer need to apply to the government for the $10?

But there’s more. Around 830,000 Australians do gig platform work in any year. But only 22,000 use gig for their full-time work. In other words, around 810,000 Australians (about 7 per cent of the workforce) only use gig work as part-time top-up work. How is gig holiday pay to be calculated for all these part-timers?

Whatever Albanese/Burke do, it’s destined to be a mess. The proposal/promise is illogical. It doesn’t fit the reality of how people work. It’s dumb. Its dangerous. It will do much harm.

We will keep arguing against this.

In London on joint international self-employed defence campaign

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London-QueenI’ve been in London over the last week-and-a-bit. We (SEA) have a long association with several UK self-employed associations and have been working with them on common issues to defend self-employed people. Hence the London presence.

The two big issues are:

  • The UK tax authority’s (HMRC’s) unfair treatment of self-employed people. (Sound familiar to the ATO??)
  • Identifying whether an individual is an employee or self-employed and what ‘rights’ each has.

Reforming tax administration

After many months of planning we were lined up for meetings/presentations with UK MPs in Westminster. These meetings were to discuss how HMRC could be reformed along the lines that we’re campaigning on for reform of the ATO. That is, using the USA laws covering the IRS as a template. However, the passing of the Queen and her funeral have meant that all these meetings were cancelled. Once the Royal transition is complete and the UK Parliament starts operating again, we’ll be working with our partners to re-initiate the campaign.

Our aim is to see if we can get a common movement in UK and Australia for reform of the HMRC and ATO. The treatment of self-employed people by both administrations is terrible, and their intimidatory behaviours share similar features. With a joint campaign effort we may increase our chances of achieving fairness for self-employed people.

Self-employed status and ‘rights’

We did, however, go ahead with a planned workshop session on self-employed status and ‘rights’. Included in this workshop were like-minded friends from the USA. This issue is ‘hot’ in the UK and USA (think California outlawing self-employment). Even though the media were present, we’ve recorded the workshop and presentation and will also release this once the Royal transition is complete. This issue has great importance for the UK, the USA and Australia. In Australia the Albanese government is committed to ‘smashing’ the self-employed. And the Albanese government, we predict, is likely to replicate very confusing UK ‘little bit pregnant’ laws to achieve its aims.

We’ll have a lot more to say about this and to explain the issues over the coming weeks/months. But at this stage we’re putting together a UK/USA/Oz ‘team’ to focus on the common themes to defend the right of people to be self-employed. We’ve gotta be organised!

More soon.

Apparently we’re a ‘cancer’ according to the Albanese government

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cancer-aged-care-gigWorkplace Relations Minister Tony Burke recently called gig work a ‘cancer’. Give us a break! What a ridiculous overstatement.

Let’s get real. Only 0.19 per cent of workers earn their full-time income through gig platforms. Yes, 0.19 per cent! That’s it. But, on the back of this cancerous depiction of gig work, the Albanese government intends to clamp down on it.

People who do gig work are, by definition, self-employed. Attacking gig means attacking self-employed people. Burke’s comment is insulting to self-employed people.

But if we’re going to apply such politically emotive language to policy analysis, where’s the real ‘cancer’?

Take the aged care sector. This is one sector Minister Burke identified as having a (cancer) problem.

The 2020–21 Royal Commission into Aged Care exposed abusive treatment of people in aged care. It was and is a massive scandal. The Royal Commission recommended that self-employed people and gig work be banned from aged care.

However, the Royal Commission offered no evidence as to why self-employment/gig should be outlawed. Was it because self-employed people abused elderly people? The Commission was silent. The fact is, however, that 96 per cent of people working in aged care are direct employees of aged care providers. Surely this overwhelming percentage would suggest that the problem lies in employment, not with self-employment/gig.

Facts speak louder than assumptions.

Care workers in aged care are on rock-bottom low wages. This leads to high worker turnover and lower quality care. Low pay rates occur because the award minimum pay rates, in practice, are the maximum being paid.

But the evidence is that the 4 per cent of workers in aged care who are self-employed are routinely paid more than employees. This evidence, which is accepted as valid, comes from Mable the largest gig platform operating in aged care. The higher rates occur because the self-employed workers are free to negotiate their remuneration directly with the people they care for. This doesn’t happen with employees.

The Commonwealth funds aged care. But there’s evidence to suggest much of that money disappears into a black hole. Look at these facts.

Funding for the top level in-home care is around $114 per hour. Aged care ‘providers’ are overwhelmingly not-for-profit charities and manage the money. They pay their ‘employed’ award workers roughly $32 an hour (casual). Add workers’ compensation premiums and so on and the cost is $35 an hour. The providers routinely charge another 32 per cent ($36 an hour) for their services of assessing and monitoring need, and organising workers.

There’s a gap, therefore, of $43 an hour of unexplained and unaccounted Commonwealth funding. What’s going on?

This month, media leaks from a yet-to-be-released Health Department report state that 9-in-10 in-home care providers don’t meet minimum government price transparency requirements. Some 275,000 older Australians receiving government-funded home care can lose up to 60 per cent of their allocated money in provider fees.

This ‘disappearing’ money is being spent on “excluded items” such as holidays, TVs, renovations and more. Maybe a good portion of this expenditure is justified? But is this where $43 an hour goes?

What is obvious is that the front-line employees doing the care are paid rubbish. Surely within existing funding budgets there is ample room to pay workers more. There’s a lot of fat in the system. Self-employed gig workers individually can and do negotiate higher remuneration. This doesn’t happen with employees.

What really emerges is that it’s the employed 96 per cent of workers in aged care who are being exploited by the ‘employment’ system.

The ‘cancer’ in aged care looks much more like the result of employment management systems than the outcome of gig platforms. In fact, gig-organised self-employment could well be the answer to a sick aged care system.

The Albanese government should take off its ‘cancer’ blinkers. Gig and self-employment offer real solutions, not problems.

Unions and labour lawyers in panic. High Court disaster!

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contract-kingA major High Court decision in February this year has sent unions and labour lawyers into a panic. The High Court declared that when deciding whether a worker is an employee or self-employed that the written contract is king!

We’ve waited until we received detailed legal analysis of the decision before making comment, which we can now do. We’ll send out several news alerts on this. It’s extremely important.

In simple layperson’s terms the High Court has said that:

  • If a written contract is clear and comprehensive, a court must primarily rely on the written contract in coming to a decision.

This seemingly knocks out what’s been used for the last 40 years or more. Courts have applied the ‘multifactorial’ test, which is a basket of behavioural indicators only one of which is the written contract. The High Court has said that the lower courts have misunderstood the situation and that the High Court has always had the view that the written contract is supreme.

This has sent unions and labour lawyers into a spin. The multifactorial test has been great for lawyers and unions because they could retrospectively examine a case going back years. It is a great source of income for lawyers and has allowed unions to intimidate businesses and self-employed people.

But the High Court has said that it has a duty to create certainty, stating that the multifactorial test:

“… is apt to generate considerable uncertainty, both for parties and for the courts.”

And

“It is the task of the courts to promote certainty with respect to a relationship of such fundamental importance.”

We see this as extremely important. There are 2.1 million self-employed people in Australia. We have a right to clarity and certainty. The High Court has done the right thing by society in its drive for clarity.

But there are others who want uncertainty. This is bad. And the pressure is already coming on the Albanese government to pass legislation to create uncertainty. We will campaign strongly against this.

But first we want to ensure that there is clarity about what the 99-page High Court judgement says.

We’ve prepared the following links for SEA members:

We’ll have more information and comments soon.