Freelance work is becoming more prevalent for a variety of reasons. For some, its flexible schedule allows for taking care of family and childcare responsibilities. For others, it is simply getting away from the grind of daily employment. For a few, it is an option after having lost full-time employer-based employment.
Whatever the reason, it is important that all parties involved, both the freelancer or independent contractor as well as the temporary employer, be aware of the benefits and pitfalls.
Initially, it is important to be sure that the definition of an independent contractor is understood and the factors are present for this categorisation of employment. An employer must understand the important factors that maintain a worker’s status as an independent contractor:
- The freelancer has their own Australian Business Number (ABN).
- The control of the work is in the hands of the independent contractor.
- The base of clients for the freelancer is unlimited.
- The volume of work is within the control of the independent contractor.
- Provision of supplies and work materials remains the responsibility of the freelance provider.
- The right to subcontract all or part of the agreed services remains with the independent contractor.
- Health and Welfare benefits remain the responsibility of the freelancer.
- Savings for retirement and/or superannuation usually does not involve the employer.
- The work is task-specific rather than time-oriented.
- Sick pay, vacation leave and holidays are not paid by the employer.
While freelancers may forgo some of the benefits and entitlements of an employee, they are not entirely without rights. The Fair Work Act 2009 provides the independent contractor with some protections in the workplace. Hence, all employers must be aware of the rights of their independent contractors. For example, an independent contractor can make a complaint against a temporary employer for;
- unfair contract practices
- non-payment of contracted for services
- breach of contract
- threatening or coercing an independent contractor
- pressuring a freelancer or independent contractor to provide services for an unconscionable rate
- making false or misleading statements about the freelancer’s work.
Employers do not have to worry about providing benefits to their independent contractors who fund their own healthcare needs, sick and vacation pay and superannuation accounts. Freelancers can use a formula to determine how much of their earnings they need to set aside to fund three to five sick days per year and an annual vacation or holidays and can continue to pay into their superannuation fund voluntarily.
All freelancers and independent contractors must take into account the responsibilities of payment of their own personal income taxes. They will need to set aside a correct percentage from their earnings to make proper tax payments each year. In addition, it is necessary for a freelance worker to register for and properly charge for Goods and Services Tax (GST) if they earn above the threshold.
It is also important for all independent contractors to remember that they will have business expenses that are deductible from their annual income. It is necessary for these types of expenses and potential deductions to be properly recorded and accounted for.
While there are many varied responsibilities for those who choose to work in the freelance industry, there are also many benefits. If all aspects of an independent contractor’s work are done properly, a freelancer can make an excellent living with a great deal of flexibility and freedom. And employers who are careful to follow the rules and regulations of employing independent contractors can also reap significant benefits from the talents and services of this workforce.
Rolf Howard, Managing Partner, Owen Hodge Lawyers