MIGA often receive queries from our clients regarding the considerations to be taken into account when employing or contracting staff. These queries often arise under circumstances where the client is wanting to minimise the risk of a dispute regarding the terms and conditions of an employment contract or services agreement.
Common themes and key messages arising from these queries include:
1. Establish and know the key differences between an employee and a contractor
Understanding the differences between an employee and a contractor is critical, particularly to avoid penalties under the Fair Work legislation for sham contracting.
- An employee does not perform tasks independent of their employer while a contractor can operate their own organisation independently and can choose to accept or refuse certain tasks
- An employer provides the majority of equipment used by an employee while a contractor may provide their own equipment
- An employer dictates and controls the work which is performed by an employee while a contractor has a level of control over the work they perform
- An employee is paid regularly based on their time worked (i.e. annual salary payments) while a contractor submits invoices for their completed tasks
- An employer is responsible for the commercial and financial risks of an employee while a contractor is responsible for their own commercial and financial risks (and will require their own insurance policies to manage those risks)
- An employee is engaged personally while a contractor can be engaged personally or via a company entity
- An employee cannot delegate their tasks to a subcontractor while a contractor can delegate and hire a subcontractor to perform their tasks
- An employee is required to perform their tasks during designated hours while a contractor has control over the flexibility of their working hours
- An employee usually has an ongoing expectation to perform certain tasks for their employer while a contractor may be engaged to perform a specific task
- An employer withholds income tax from an employee’s remuneration while a contractor pays their own tax and is responsible for meeting their own personal GST obligations
- An employee is entitled to accrue paid leave (personal leave, annual leave, sick leave, long service leave) while a contractor is not entitled to accrue any paid leave benefits.
2. The importance of written contracts / agreements and job description
While it is not uncommon for a worker to be hired as an employee or contractor based on a verbal agreement (or ‘gentleman’s agreement’) this is not recommended and it is preferable for the terms and conditions of an employment contract or services agreement to be in writing. This will help to avoid any ambiguity or confusion in the event of a dispute arising between the two parties.
Common disputes which are difficult to resolve in the absence of a written employment contract or services agreement include:
- Disputes about the appropriate classification of the worker (employee versus contractor)
- Disputes about the term of the employment contract or services agreement
- Disputes about the reasonable notice period required to terminate the employment contract or services agreement
- Disputes about the ownership of confidential information and intellectual property following the termination of an employment contract or services agreement
- Disputes about the reasonable restraint of trade and non-solicit conditions following the termination of the employment contract or services agreement.
3. The importance of pre and post-employment checks
Pre and post-employment checks are critical, particularly in the context of hiring a medical professional in order to avoid the following potential risks:
- An employee or contractor breaching the terms of a provisional or conditional registration issued by the Medical Board of Australia
- An employee or contractor working with children or vulnerable persons without undergoing the appropriate Police and reference checks
- An employee or contractor compromising the security of a medical practice by retaining security access to the premises, emails and patient records following their exit from the practice.
4. Additional considerations to be taken into account when hiring professional staff
When hiring professional staff, it is critical to sight and keep a record of the following additional information:
- Current registration from professional body governing their role e.g. Medical Board of Australia. It is important to check that the registration is “clean” and that there are no conditions that would be of concern to the employer, or that could give rise to further investigations
- That all obligations for effecting and maintain insurance have been complied with. In the case of Medical Indemnity Insurance for Doctors that the cover is consistent with the individual’s role and provides adequate cover. Note that Certificates of Insurance are generally only suitable for confirming currency of insurance. Policy Schedules provide full details of insurance and may therefore be more valuable.
Issues around employment and contractual arrangements can be extremely complex. This article is intended to reinforce the importance of obtaining advice about these important business contracts.
Your insurance with MIGA will respond in the event of a dispute, but it is a great risk minimisation strategy to get your documentation in order from the start.