Treading the fine line

The decision to engage contractors is often fraught with danger and managing the relationship frequently requires treading the fine line between ensuring that contractors are productive and allowing contractors to retain their independence.  In my previous blog “The issue that never goes away – Employees or contractors?”, I considered the difficulties that businesses face in deciding how to engage workers.  In this blog, I look at the practical issues associated with getting the most out of your contractors.

For businesses that rely heavily upon contractors, ensuring that contractors are productive whilst maintaining the relationship on an arms’ length basis is especially difficult as relationships between the business and the contractors often develop in the same way as does an employer/employee relationship.  This can be by accident, but often it is unwittingly by design.

For example, consider a small business which engages many contractors to provide a personal service to the business’ clients.  The business has a well-drafted contractor agreement in place which clearly defines the relationship as that of a principal and contractor.  However, in an effort to “engage” contractors and to ensure productive outcomes, the business puts in place a rewards system for the contractors.  Additionally, the business holds “staff meetings” which the contractors are required to attend, provide uniforms bearing the business’ logo and pays contractors by the hourly service they provide.

Often, the situation propels from there.  Businesses obviously want to ensure that their brand is represented in the way they want and expect.  They want to ensure that the contractor works with the business’ organisational values and that the business’ culture remains intact.  To achieve this, and to ensure productivity, businesses often engage contractors through a ‘recruitment process’ and motivate and engage them in the same way as they would employees.

Whilst these practices might help the business achieve business goals, they also substantially blur the line between a contractor and an employee at law and set the business up for a showdown with, potentially, the ATO, the workers compensation insurer and the Fair Work Commission.

So how then do businesses ensure the productivity of their contractors without blurring the line?  There are various ways but ensuring that tightly drafted clauses requiring measurable key outcomes is a must.  So too is ensuring that there are not practices in place which tend to reward contractors in much the same way as an employer would reward its employees.  Remember that facing the consequences of getting this wrong will easily outstrip any gains those practices were designed to make.

At HR Business Direction we can assist with identifying and managing Industrial Relations risks.

Melissa Fitzpatrick LLB (Hons); B.Int.Bus; IRSQ
Industrial & Employment Relations Specialist
melissa.fitzpatrick@hrbd.com.au
07 3890 2066
www.hrbd.com.au