Top 5 questions to ask every payroll client

When engaging a new payroll client, it is essential that you analyse the risk that this client may pose to your business due to their own poor HR practices. Asking your client the following questions will help you assess your client's HR risk profile, and accordingly help you decide whether you'd like to do business with them.  

1. Are your workers employees or independent contractors?

It is not uncommon for employers to engage independent contractors to do ad hoc tasks, or to offer workers the choice between engagement as an independent contractor or employee. However, it is important to note that whether a person is an employee or contractor is a matter of fact and law and not choice or preference.

The following is a non-exhaustive list of the factors that must always be considered when determining whether an individual is an employee or an independent contractor for the purposes of employment law. Please note that no single factor is determinative on its own:

A person is more likely to be a contractor for employment law purposes if they:

-    run their own business, 
-    have the power to engage another worker and delegate work, 
-    have a high level of control on the work that is done,
-    decide what hours of work to complete on a specific task, 
-    bear the risk for making a profit or loss on each task 
-    pay their own superannuation  
-    use their own tools and equipment  
-    pay their own tax and GST to the Australian Taxation Office 
-    have obtained an ABN and submit an invoice for work completed, or are paid at the end of the contract or project, and/or
-    do not accrue paid leave 

A person is more likely to be an employee for employment law purposes if they:

-    perform work under the direction and control on an ongoing basis 
-    generally works standard or set hours  
-    have an ongoing expectation of work 
-    bear no financial risk (this is the responsibility of their employer) 
-    have income tax deducted from their payments 
-    are paid regularly (for example, weekly/fortnightly/monthly) 
-    are entitled to receive paid leave (for example, annual leave, personal/carers' leave, long service leave) or receive a loading in lieu of leave entitlements in the case of casual employees 

It is important that you and/or your client apply the above factors to determine whether a worker will be deemed an 'employee' or 'contractor' for employment law purposes. Failure to do so puts your client at risk of 'sham contracting' which is a serious breach of the Fair Work Act 2009.

2.      If the workers are employees, will they be covered by the Fair Work Act 2009?

Most private sector employers in Australia are 'national system employers', and their employees will be covered by the Fair Work Act 2009. (the 'Act'). This includes all proprietary companies (often indicated by 'Pty Ltd' at the end of the organisation's name), and not-for-profit associations incorporated under State or Territory incorporated associations legislation (usually indicated by 'Inc' at the end of the organisation's name). However, there are circumstances where an employee will not be covered by the Act.

(a)    In Western Australia, businesses that are not constitutional corporations are not covered by the Fair Work Act 2009. These include:

(i) Sole traders

  • (ii) Unincorporated partnerships
  • (iii) Unincorporated trusts (e.g. The Jones Family Trust as trustees for A Cut Above Hairdressing)
  • (iv) Incorporated associations that arenottrading or financial corporations and other not-for-profit organisations that arenottrading or financial corporations.

(b)    State public sector and local government employees (in NSW, QLD, SA, Vic and Tas) will be covered by the Act if they are covered by an Enterprise Agreement registered in the National Workplace Relations System. If they are not covered by such an agreement, they are not covered by the Act and their minimum terms and conditions of employment are governed by State law.

3.     Does a Modern Award, or Enterprise Agreement apply? Alternatively, are the employees Award-free?

Modern Awards are legally binding industrial instruments that set out minimum pay rates and conditions of employment. There are 122 industry and/or occupational Awards, and determining which one applies is not always straightforward. For example, if an industry Award applies, and it contains classifications that describe clerical or administrative duties, then this Award will cover clerical staff. However, if no such classifications exist, then the appropriate occupational Award being the Clerks - Private Sector Award 2010 will apply. This means that it is important to check the detail of the Modern Award classifications schedule.

4.     Have you determined the applicable legal minimum wage for each employee?

The national minimum wage is currently $18.29 per hour, or $694.90 per week (based on a 38 hour week). This is the legal minimum wage that must be paid to Award-free, part-time and full-time employees. Casual employees must receive a 25% loading on top of this base rate.

Employees covered by Modern Awards or Enterprise Agreements must be paid the minimum rates that correspond to their classification under that Award or Agreement. This rate will be higher than the national minimum wage. Further, overtime, penalty rates and allowances may apply under the Award or Agreement.

5.      Do you have compliant time and wages record-keeping processes in place?

It is critical to keep good time and wages records for at least seven years. In the event of a Fair Work Ombudsman audit, the time and wages will serve as a primary source of evidence of compliance (or non-compliance). Pay slips must include:

  • (i) the employer's name; and
  • (ii) the employee's name; and
  • (iii) the employer's Australian Business Number (if applicable)
  • (iv) pay period
  • (v) date of payment
  • (vi) gross and net pay
  • (vii) if the employee is paid an hourly rate:
  •           (a) the ordinary hourly rate
  •           (b) the number of hours worked at that rate
  •           (c) the total dollar amount of pay at that rate
  • (viii) any loadings, allowances, bonuses, incentive-based payments, penalty rates or other paid entitlements that can be separately identified from an employee's ordinary hourly rate
  • (ix) any deductions from the employee's pay, including:
  •           (a) the amount and details of each deduction
  •           (b) the name, or name and number of the fund/account the deduction was paid into
  • (x) any superannuation contributions paid for the employee's benefit, including:
  •           (a) the amount of contributions made during the pay period (or the amount of contributions that need to be made)
  •           (b) the name and/or number of the superannuation fund the contributions were made to.

There is no obligation to show employees' leave balances on pay slips, however, employers do need to tell employees their leave balances if they ask. 

Source: Michelle Blewett, Senior HR Advisor - Workforce Guardian

Published: 24 August 2017

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