How to minimise the risks of a contractor workforce

What are the risks that come with a contingent workforce?

How to minimise the risks of a contractor workforce

Businesses face risks from all directions. Adverse economic conditions, individual disputes and even political turbulence can all have an impact on a company's ability to turn a profit. While many external factors are out of an operator's control, identifying internal risks gives business owners the opportunity to take action. 

A key part of Oncore's contractor payroll solutions (also known as contingent workforce solutions) is managing the risk that comes from engaging contractors. Here are some risks that operators need to watch out for.

What are the risks of using contractors?

1. Health and Safety

Under the Work Health and Safety (WHS) Act 2011, companies must ensure the health and safety of their workers while they're on the job, so far as is reasonably practicable. This means:

  • Choosing contractors that have a proven safety record (this can involve requiring them to provide documented evidence).
  • Providing training for contractors when they're brought on board, based on the risk the work being undertaken presents.
  • Ensuring workers have access to adequate health and safety information, training and instruction that is easily understood.

Companies that fail to meet their duty of care under the WHS Act are liable to be fined.

Comcare recommends businesses think about the degrees of control various parties have – if the contractor has specialist knowledge of the work they are to undertake, then businesses should remind them of their health and safety responsibilities under the WHS Act.

Companies that fail to meet their duty of care under the WHS Act risk fines of up to $3 million for a category one offence (recklessly endangering a person to risk of death or serious injury). 

2. Worker misclassification

The Independent Contractors Act 2006 and the Fair Work Act 2009 both provide protection for independent contractor's rights and entitlements. It's important that when you have a mixture of employees and independent contractors, you don't mistakenly engage the former as the latter.

Guidelines provided by the Fair Work Ombudsman can help you determine whether a worker is an employee or a contractor:

  • What's the degree of control over the work performed? Employees work under the direction and control of their employer, whereas contractors have a lot more autonomy in how they work.
  • What are the hours of work? Employees usually have set hours, whereas contractors agree on the hours to work to complete a specific task.
  • What is the expectation of work? Employees are usually engaged on the basis that there's a continuing expectation of work, whereas contractors are most often engaged for a specific task.

No single factor determines whether a worker is an employee or a contractor, so decisions have to be made on a case-by-case basis. The full list of relevant factors can be found on the Fair Work Ombudsman's website.

Companies that misclassify their workers (intentionally or not) are at risk of financial penalties imposed by the Fair Work Ombudsman. Accidental misclassification can occur when it's not unambiguously clear whether a worker is an employee or contractor. For example, if somebody was engaged as a contractor, worked standard hours in the company's building on a continuous basis but was not explicitly under the direction of the company's managers, then there's potential to argue this person is actually an employee. In cases like this, sham contracting claims can be brought against the company by the worker in question.

3. Liability for work

Where do your responsibilities begin and end? Identifying the boundaries of your liability with contractors is fundamental to mitigating compliance risks. 

Typically, this is defined in an indemnity clause – the mechanism by which the contractor assumes the risk of loss or damage to the company that may result from their work.

Sometimes these may also state that contractors only assume liability for things that were within their control. As such, companies need to be careful when they engage contractors and be informed about what they are and aren't liable for when it comes to the contractor's work.

Knowing which party is liable for what is an important part of managing contractor risk.Knowing which party is liable for what is an important part of managing contractor risk.

How to minimise the risk from contractors?

Being mindful of the factors outlined above can help you minimise the risks from contractors, but sometimes, things can slip through the cracks. That's why we recommend bringing Oncore on board – when you partner with us, the employment risk that comes with engaging contractors commonly sit fully on our shoulders. Add that to Oncore's ability to manage your payroll and insurances, and you'll find your company's exposure to employment-based risk is greatly diminished.

To find out more about how we can help you manage your contingent workforce with minimal risk, fill out our corporate solutions enquiry form. A member of our team will get in touch as soon as possible to discuss how Oncore can serve you and your business.