Legally Fit: the difference between
contractors and employees
What does this distinction mean for fitness professionals and fitness businesses?
It’s pretty difficult to run a fitness business without fitness professionals. However, just as the best exercise program for one client may not be the best for another, whether it is better to use employees and/or independent contractors for the provision of personal training (and other fitness services) will depend, in part, on your particular business model.
It will also depend on whether they are employees or independent contractors, at law.
For instance, rendering an invoice, having an ABN, calling someone an independent contractor in an agreement, the fact that others in the industry use independent contractors and a number of other common misconceptions do not alone render an employee an independent contractor. But does it really matter?
In two relatively recent cases, the Federal Circuit Court imposed significant penalties on employers that were found to be in contravention of the ‘sham contracting’ provisions of the Fair Work Act 2009 (FWA) (e.g. misrepresenting an employee relationship as an independent contracting arrangement). Back pay was required to be made, and penalties were also imposed against directors of the employer companies. While those cases did not involve a fitness business, the issues in the cases may be just as applicable to the fitness industry.
In this instalment of ‘Legally fit’, we therefore look at some of the issues you should consider when determining whether to engage someone as an employee or an independent contractor. To read previous articles in this series search ‘Legally fit’ click here.
Rights and obligations
Whether a fitness professional or other worker is an employee or independent contractor will have an effect on a number of rights and obligations of the parties, including in relation to employment entitlements, taxation obligations, superannuation entitlements and obligations and workers compensation. Some of the differences in the rights of, and obligations for, employees and independent contractors are set out in Table 1.
These rights and obligations have an impact on both the fitness professional and the employer. For instance, if the fitness professional is an independent contractor in his or her own name, not only will they not have leave and other related employment entitlements, they may also not be entitled to workers compensation in the event of an injury. (Search ‘Legally fit business structure’ at fitnessnetwork.com.au/resource-library for other considerations when deciding what sort of structure should be used for your fitness business.) However, the fitness professional may still have a right to be paid superannuation, even if they are an independent contractor.
A sham contracting arrangement is when an employer attempts to disguise an employment relationship as an independent contracting relationship to avoid providing employee entitlements.
The sham contracting provisions of the FWA provide that an employer must not:
1. misrepresent an employee relationship as an independent contracting arrangement; or
2. make a statement that the employer knows is false in order to persuade or influence an employee to become an independent contractor.
An employer must also not dismiss or threaten to dismiss an employee in order to engage the employee as an independent contractor to perform the same work the employee was previously performing.
The penalties for breaching the sham contracting provisions can be up to $51,000 for companies and $10,200 for individuals for each contravention. Back pay, including superannuation, may also be ordered.
It is therefore important to properly work out whether a fitness professional or other worker is an employee or independent contractor.
Who is an employee/independent contractor?
Essentially, employees work in and are a part of your business, whereas independent contractors run their own business. It is not as simple though as just saying someone is running their own business and is therefore an independent contractor.
There are a number of factors which must be considered in determining whether someone is an employee or an independent contractor. Some of the factors may point to someone being an employee while other factors may point to the same person being an independent contractor. The whole of the relationship of the parties must therefore be considered, not just one factor.
Both the Fair Work Ombudsman and the Australian Taxation Office (ATO) have published tables of factors which need to be considered when determining whether a worker is an employee or a contractor.
Business.gov.au and the ATO also have online Independent Contractors Decision Tools which can be used to help determine whether someone is an employee or independent contractor.
There are legitimate and appropriate circumstances where personal training and other fitness services can be provided by independent contractors. The important thing though, for the reasons discussed above, is to make sure that to the fullest extent possible you have got the relationship with your fitness professionals (and other workers) right.
This article has provided a general outline only of some of the issues relating to employees and independent contractors. It does not constitute legal advice and should not be relied upon as such. Specific legal and financial advice should be obtained in relation to the specific details of each proposed employment and independent contractor arrangement.
Leon Ponte, Juris Doctor (Law) is the founding principal of Ponte – Business Lawyers for Business and is in a select group of approximately only 110 lawyers accredited as specialists in business law by the Law Institute of Victoria. He has a strong personal interest in the fitness industry, holding Certificates III and IV, and has provided advice to fitness facilities, personal trainers and suppliers to the industry. ponteblfb.com.au