How savvy business leaders can best utilise freelancers and avoid miscalculations
By Jonathan Perumal >>
ECONOMIC PRESSURES and fears of global financial instability are leading many Australian businesses to implement hiring freezes or lay off significant numbers of staff. This trend is particularly visible among technology companies and start-ups as they scale back previous growth forecasts.
In this uncertain environment, companies need to remain agile and effectively utilise all the resources available to them to remain competitive. One way to do this is by bringing in freelance workers, also referred to as independent contractors, rather than hiring new full-time staff.
There are 1.1 million independent contractors in Australia, comprising more than eight percent of the employed population, according to recent ABS data on working arrangements.
Companies can tap into this local talent pool, or bring in international freelancers, to supplement skills gaps, for extra support during certain phases of the business cycle, and to execute specific projects.
But in doing so, it is important for businesses to understand the risks of misclassification, which can result in substantial penalties.
Freelancers bring independence, flexibility, cost savings to a business
Freelancers can provide benefits that businesses may not get with existing employees. They are typically highly skilled individuals with deep expertise in their respective fields. Working with a variety of clients can also give them a greater breadth of experience than employees who work for a single company.
Freelancers typically use their own tools to complete work, meaning there is less reliance on company resources. They also retain a degree of control and independence in doing so, meaning that businesses that hire them can focus on the deliverables, not the steps taken to get there or the time they allocate to the task.
As freelancers usually don’t require, or expect, much oversight in their work from clients when completing projects, management and administration teams can spend less time managing a freelancer’s workload. These teams can direct their energy to other tasks, like developing company strategy and longer-term goals.
Businesses can bring in and let go of freelancers as their needs change, without the obligation to provide the overhead associated with a full-time employee. Companies are also not required to make employer tax liability payments because freelancers are self-employed.
For these reasons, it can be more cost-effective to work with a freelancer as opposed to an employee – under the right circumstances.
Freelance workers can be an asset to businesses that are looking to supplement their internal resources or complete certain projects during times of economic strain. However, without a solid understanding of regulations governing the use of independent contractors, coupled with robust plans outlining the work they are tasked to do, the risk of misclassification and ensuing penalties is significant.
Understanding misclassification risks and remaining compliant
In 2018, Foodora Australia admitted to owing their thousands of food delivery drivers over $7.5 million in wages and superannuation, an underpayment that resulted from misclassifying them as independent contractors instead of employees.
The penalties involved with contractor misclassification are costly, with Australian companies liable to a $63,000 fine per violation, as outlined by the Independent Contractors Act 2006 in conjunction with the Fair Work Act 2009.
Since freelancers are responsible for their own employment taxes, social and health benefits, government regulations are in place to protect them in an employment relationship. For example, in certain circumstances, which are outlined by the Australian Taxation Office, businesses must pay superannuation for contractors who are considered employees for superannuation purposes.
To ensure your business is fully compliant with local laws when hiring a freelancer, keep these five ideas in mind:
- Prepare in advance for an audit - Conduct regular audits to determine how freelancers are being used within a company. Ensure there is a standardised process for managing contractors and their agreements, including comprehensive recordkeeping and payment transaction logging, which are beneficial to have on-hand and ready-to-go in the case of an audit.
- Understand international employment laws - Companies that take a global approach to their search for talented freelancers who may not be found as easily in the local region should understand what international employment laws determine the criteria for engaging freelancers, as they are often complex and can differ greatly country-to-country.
- Align the legal requirements with what you’re engaging the freelancer to do - Remember that for most independent contractors, they are not beholden to meetings, time ‘on the clock’ or other behaviour that a full-time or part-time employee engages in. Most often, the work requirements are aligned with project-based work versus continuing contribution to the company goals.
- Do not roll your freelancer into your day-to-day operations - Whether this is attempting to determine work hours or location or adding them to any platform or system that is used to manage employees.
- Ensure you have protection agreements in place - IP agreements, NDAs, and data protection agreements will protect your organisation, clients and the worker from any conflicts or confusion about the work relationship down the road.
Freelancers can be a great resource for businesses to fill skills gaps or complete projects, but it is vital to be aware of and actively manage the risks associated with misclassification when utilising the gig economy.
ABOUT THE AUTHOR:
Jonathan Perumal is the Australia-New Zealand (ANZ) region country manager at Safeguard Global, helping ANZ companies hire talent anywhere in the world, fast and compliantly. Mr Perumal has worked for a several fast-growth tech companies including Salesforce, Success Factors, OneLogin, Workday, and Q-CTRL over the past two decades and joined Safeguard Global last year following its expansion into ANZ. He has a proven track record of driving revenue and building strong team, client, and business partner relationships and has worked with cross functional units to drive business improvement through system optimisation and sales process improvement.