Recently there have been several articles published in the national press on the use by tradesmen of Bunnings’ ABN numbers.
In short, when people ask a tradesman or other service provider for an invoice, the invoice they receive has the name of a company or person, but the ABN of Bunnings or another entity. In an article featured in The Australian on Wednesday 2 August, Michael Andrew, Treasury’s black economy taskforce chairman, explained that the result of this is that ‘you can’t trace then where the money really went’.
Mr Andrew reported a surprising statistic that ‘more than 40% of ABNs quoted in the Northern Territory were Bunnings’. Tradesmen are likely choosing Bunnings simply because, in the words of Mr Andrew, ‘every tradesman goes to Bunnings’. They get an invoice – ‘the ABN’s up top’.
Tradesmen are doing this because it enables them to avoid tax, given that the money cannot be traced.
Bunnings are the latest corporate entity to be struck in the broader debate about the use and utility of ABN numbers. Clearly concerns over the growth of the black economy are real and present, Australians have an obligation to pay their tax and those who don’t, ought be prosecuted.
That said, it also introduces the question of who is an employee and who is a contractor. Remember several years ago it was common place to hear similar comments about Woollies and Coles.
It is fair to say that the abuse of ABN numbers has been and remains, a major concern in the construction industry. Who can forget those infamous ads in newspapers:
‘Labourers wanted, must have ABN’
Contractor or employee?
Having an ABN is only one indicator that the worker may be a contractor. Being a contractor attracts benefits for both the contractor and the principal. Unlike employees, contractors usually have control over how they perform the work; the hours they work; the people they employ and what they charge for that work. Equally the principal does not have obligations with respect to workers compensation, superannuation, annual leave, long service leave and payroll tax. Contractors do however have obligations of their own including, appropriate public liability and workers compensation insurance.
Due to the desirability of these benefits, parties are often liable to mischaracterise or misrepresent the relationship. When they do so, they run the very real risk of falling foul of the sham contracting provisions of the Fair Work Act.
It is clear from the cases, that the issue of whether a worker is a contractor or an employee is not something that is decided between the parties. Simply describing the worker as a contractor within the contract will not mean that they are contractor (see On Call Interpreters and Translators Agency Pty Ltd v Commissioner of Taxation (No 3) (2011) FCA 366). In fact, intentionally and recklessly misrepresenting the relationship will attract a significant penalty pursuant to the sham contracting provisions. The ‘employer’ may also find themselves liable to back-pay entitlements for wages, superannuation and annual leave.
Whether a worker is a contractor or an employee is a matter for the common law. Unfortunately, there is no set combination of factors that determine whether a worker is a contractor or an employee. It is the ‘totality’ of the relationship between the parties that must be examined (Hollis v Vabu (2001) HCA 44, ).
Having said that, there are some factors which tend to indicate the status of the relationship:
|Performs work as an entrepreneur and owns and operates an independent business||Performs work under the employer’s business|
|Engaged for a specified time or to perform specific tasks, usually those which require specialist skills||Engaged on a continuing basis|
|Is able to perform work in any manner as they see fit (as long as it complies with the contractual standards)||Is directed, or has been trained, to perform work in a certain way|
|Receives progress payments and then issues a final invoice for a quoted sum||Regular pay packet or slip|
The recent articles on the Bunnings ABN scam link to an issue that is commonly experienced by individuals and businesses. That is, whether a worker is a contractor or an employee.
Having an ABN and engaging with a Principal or client, as a contractor, if done properly, is an arrangement which benefits both parties. However, in many cases there is a possibility that an employee has been incorrectly classified as a contractor. Such an error has serious implications for the both parties and will likely attract penalties from both the tax office and the Fair Work Ombudsman.
If you are considering going into business yourself as a contractor, the lesson is to get legal advice. An ABN number is not a panacea nor is it sufficient. Conversely as a principal, when contemplating utilising contractors, you also need to get advice, in order to avoid the potential tentacles of the Fair Work Ombudsman, who has demonstrated a keen interest in prosecuting employers for sham contracting.
Thanks to Jonathan O’Connor (Graduate Lawyer) for his contribution to this article.
The information published in this paper is of a general nature and should not be construed as legal advice. Whilst we aim to provide timely, relevant and accurate information, the law may change and circumstances may differ. You should not therefore act in reliance on it without first obtaining specific legal advice.