It’s time to declare an end to the alleged rise in “independent contracting” that has purportedly dominated Australian workplaces over the last decade.
For years the growth of contractors has been pushed by labour deregulationists as a ground-up revolution by workers wanting to break the shackles of employment laws and strike out on their own. The success of the Howard Government was said to be partly built on a reflexive empathy for such rugged individualists, while Labor remained mired in outdated socialist approaches of capitalists versus workers.
“The ALP has finally admitted what happened to the legions of hard-working tradesmen and women who once formed the backbone of the party,” trumpeted one conservative publication in early 2007. “They have struck out to become independent contractors and the aspirational heart of Middle Australia. Unfortunately for the ALP, they have become increasingly loyal to John Howard.”
Labor’s Craig Emerson successfully carved out a niche for himself within Labor as an advocate of Labor embracing the emerging class of contractors. Emerson as a junior minister still has the title Minister for Small Business, Independent Contractors and the Service Economy.
It’s a myth, and a costly one for taxpayers.
The first blow against the purported rise of independent contractors came from the Productivity Commission in 2006, which found after a year-long study that the number of contractors was less than 800,000, and had significantly declined between 2001-04, before recovering slightly.
However, the lobby group Independent Contractors Australia still claims that “19 per cent of the Australian workforce are independent contractors, which equates to 2.03 million persons.” ICA executive director Ken Phillips has previously claimed the number of contractors was “growing at an exponential rate.”
Data released by the Australian Bureau of Statistics in June discredits that claim.
The ABS concluded that in 2008 there were 967,000 independent contractors, or 9% of the workforce. However, the ABS definition included 38% of contractors who had no authority over their own work and 54% who had only one “contract”. 27% of “independent contractors” surveyed by the ABS said they couldn’t work on more than one contract at a time. 16% had no control of any kind over their hours of work.
At the most generous interpretation, there appear to be only 500-600,000 genuine independent contractors in the workforce, and probably substantially less than that.
The ICA arrives at its 2 million figure by including business operators such as small business owners which the ABS specifically classifies as “not operating as independent contractors”. The ICA disputes the ABS’s definition.
The ABS figures also give the lie to the argument that contracting is appealing to workers across the economy. Contracting is mainly confined to the construction industry, where 32% of workers are contractors. The only other sector where contractors are a significant presence is “professional, scientific and technical services”, the domain of consultants (15%). Just under 10% of workers in transport and storage are also contractors – owner-drivers in road transport. That’s it.
Phillips, who also works at the Institute of Public Affairs, has been an enthusiastic spruiker for independent contracting for years, and regularly pops up in the AFR and other publications to lash unions and the Government’s industrial relations laws. He even wrote a book called Independence and the Death of Employment, arguing that employment relations were a form of oppression and workers yearned to be free of the tyranny of bosses and management. Phillips has done well from his independent contracting shtick and good on him. It also appropriate for genuine independent contractors to lobby in their own interests, although apparently Independent Contractors Australia only has around 200 members, including employer representatives.
But far from being a tool for freedom, contracting can have a serious human cost as workers are compelled to become contractors by employers looking to save money by underpaying them, avoiding superannuation and other on-costs, or avoid OH&S responsibilities. This in turn places pressure on legitimate employers. One of the more notorious cases is that of Kemalex, which tried to force workers at its Melbourne plastics plant to become independent contractors in 2005. The dispute included an attack by masked bikies on a mostly-female picket line.
And as the CFMEU has argued, construction industry contracting costs several hundred million dollars a year at least in lost tax revenue.
An ongoing problem is that, both prior to the Howard Government’s Independent Contractors Act, which removed contractors from industrial relations regulations, and since, it has been difficult and expensive for unions to bring court actions relating to sham contracting. The first action by the Workplace Ombudsman under the Howard-era laws was only commenced in January this year.
The Australian Building and Construction Commission is ostensibly tasked with, as its website boasts “enforcing independent contractor legislation where it applies to a building industry participant.”
The ABCC does nothing of the sort, being obsessed with prosecuting unionists who refuse to cooperate with it, or forcing passers-by into secret interrogations over industrial disputes. The ABCC’s own records show it has undertaken no actions in relation to sham contracting, and under questioning at Senate Estimates in June last year admitted it had only investigated two such matters. ABCC Commissioner John Lloyd claimed that this reflected the lack of complaints to start investigations, but Commission staff later admitted they had initiated 1361 other actions involving issues such as unlawful union activity.
The Government has committed to amend the Independent Contractors Act to eliminate sham contracting, but has yet to take any action. Myths apparently die slowly.
Re. independent contractors.
As a tax agent working with these so-called contractors I have met some very unhappy employees who have been forced by employers to apply for an ABN and be employed as a contractor. Either that or no job!
Currently the ATO is making life difficult for people put in this position by now not issuing ABNs
to them as they are considered to be salary and wages employees. All fine and good for the ATO,
but why do they not send out their inspectors to the employers and insist that the workers should be covered for holiday pay, sick leave and superannuation.
In my opinion the responsiblilty lies with the ATO. I could write a whole essay about what is wrong at the ATO, but it would be a waste of time, they don’t answer the written word or for that matter any other query you might send their way.
This chimes with a strong piece on 7.30 Report tonight.
I spent 5 years also as a so called i.c. which was very part time work that grew to half and nearly full time. No holiday or super in any of that time. And it was in the community media sector. I thought I was helping democracy, doing my duty etc and maybe I still do. I get the feeling this is a US style business approach to labour as if their culture has anything to offer regarding equity. Freedom, creativity, entrepeneurialship maybe, equity no.
In parallel another part time job with super and a fat Christmas bonus. But actually I wanted it structured as i.c. for a while there so I could exercise my own level of discretion. In fact that was the deal I made with the manager in this second part time job job to keep my political independence as a community news blogger.
But I tell you the 3 tax forms as an i.c. each year is a mind bender. The third one is a supplementary to the 2nd one which is a supplementary to the first one. I even let it go three years and caught up last year. Phew.
From memory there is a threshhold of 20K revenue to qualify as an i.c. sole trader and other rules about controlling your own work and own plant and equipment etc and more than one client etc. It’s more of an overall test than one or other factor. All this might make sense in an upwardly mobile boom, but you can see where the unions are coming from in a downturn where security is a premium. Good luck to them.
Most so-called independent contractors are employees under another name. There are significant tax benefits to being an ‘independent contractor’ – you can register for GST, and you can claim deductions for work related expenses above and beyond what an employee can claim.
Employers love independent contractors because it makes things easier for them. Sometimes cheaper, in an unfair world, but even if they pay the same overall package (where the contract rate accounts for salary + super + sick leave + annual leave, etc) it is still cheaper due to far lower adminstrative costs. Administration of contractors is about as challenging and paying a power bill!
Of course the paperwork complexity is transferred to the contractor. The perks for the contractor are that they are allowed a level of taxational freedom that a regular employee could never envisage, but the headache of paperwork is a big deterrent.
The tax laws are quite clear about who is and is not deemed an independent contractor. They must not work more than a certain percentage of their time on one contract or at one employer’s – sorry, client’s – workplace. They must provide something other than simply labour – be it their own tools and equipment, or other capital required for work. The work must be of a contracted nature, i.e. task for money, not time for money. It goes on.
For some reason, the ATO never seem to investigate this farce. The amount of lost taxation dollars must be astronomical.
Terrific article, Bernard. Let’s see whether the Rudd government has the bottle to change the ABCC to a functional protector of workers, or disband it and create something that works. I won’t hold my breath.