Benefits f Cntractr Wrkfrce Slutin Outsurcing - Risk Management 10 December 2010 CXC Glbal Research
Executive Summary CXC Glbal is a specialist Cntractr Management Cmpany with enrmus depth f experience in regard t the engagement and management f cntract wrkers. CXC Glbal has a specific expertise in terms f identifying and mitigating the risks that cntract wrkers can present t yur rganisatin. Fllwing are three examples f risks yu face every day if yu use cntract wrkers. The cnsequences f these risks can be substantial financial penalties and significant reputatinal risk. In relatin t White Cllar cntract wrkers, the main areas that require risk identificatin and management are: ATO Risk It is extremely cmmn fr rganisatins t directly engage with cntract wrkers. An example f direct engagement is where a cntract wrker invices yur accunts payable department. This is an extremely risky exercise if yur cntractr is a Sle Trader (i.e. has an ABN, but n legal entity structure). In such cases the ATO is extremely clear. Yu are bliged t deduct PAYG withhlding tax and superannuatin fr these cntract wrkers. By way f example, a cntractr earning $100 per hur translates t $184,000 p.a. in grss earnings. If PAYG tax is nt deducted and this is detected by the ATO, the penalties include, but are nt limited t: PAYG tax payable $60,000 Penalty fr late payment $60,000 (100% f the late amunt) Superannuatin $16,500 PENALTY $136,500 per cntractr, per year f engagement Hw many f these cntractrs d yu have? Many rganisatins have n idea hw t measure this expsure as reprting data is generally nt available t management. It is cmmn fr heavy users f cntract wrkers t have 100 such cntractrs; this culd amunt t $13,600,000 in penalties. It is imperative that yu cntact CXC Glbal t btain advice n indentifying, quantifying and mitigating this risk. State Revenue Office (SRO) risk This risk is primarily represented by the varius State Payrll Tax Acts. Whilst each State is subtly different, in general, mst, r all, f yur white cllar cntract wrkers are likely t be viewed as deemed emplyees by Revenue authrities, in which case Payrll Tax (PRT) is payable. It is extremely cmmn fr cmpanies nt t be cmpliant with PRT bligatins n cntractrs, especially thse wh invice yur accunts department. The Payrll Tax payable fr the average $100 per hur cntractr is $10,120 p.a., plus penalties (penalties are generally an interest penalty fr late payment). Whilst $10,120 per cntractr p.a. is nt as significant t yur rganisatin as the ATO risk, the Revenue Authrities are actively auditing fr cmpliance and rganisatins engaging cntract wrkers are a specific target.
The audit activities f varius State Revenue Offices, d hwever pse an additinal risk t yur rganisatin. Any breach fund by ne Authrity will be reprted t ther State Authrities and the ATO under data harmnisatin cnventins. Being nn cmpliant in terms f Payrll Tax has a strng likelihd f leading t investigatins and the mre severe penalties levied by the ATO. CXC Glbal are cmpliance experts. Industrial Relatins / Cmmn Law risk Determining whether a wrker is a cntractr r emplyee is nt an exact science, but is best viewed as a spectrum f cntracts and business practices that tgether indicate a wrker s status. It is imprtant t nte that the wrding in cntracts stating a wrker is an independent cntractr is meaningless when it cmes t Cmmn Law. The determinatin is based in the verall nature f the relatinship and leveraging CXC Glbal s experience in this field will help yu mve the cntractr tward the safe end f the spectrum. If yu have a white cllar wrker n an hurly / daily rate, wrking n yur premises (r yur client s), using yur equipment (cmputers, phnes, etc) chances are that cntractr will actually be an emplyee under Cmmn Law. Hw yu label r engage a cntractr (even via a Recruitment Agency) will prbably make n difference t the Cmmn Law utcme withut CXC Glbal s expertise. This translates directly t the Fair Wrk Act and yu may well have a Full Time Emplyee n yur hands (r many Full Time Emplyees). The cnsequences are again financial and reputatinal. Superannuatin and Leave fr a $100 p.h. cntractr will equate t arund $40,000 p.a., plus retrenchment benefits as enjyed by yur real emplyees r an unfair dismissal case. Fair Wrk Australia can als levy fines f up t $33,000 per breach. Hw wuld yur rganisatin respnd t an actin by a cntractr and hw wuld that change if it were a class actin by a specialist I.R Law firm? Summary This is a very brief utline f sme f the main risks presented by Cntract Wrkers t rganisatins. CXC Glbal s detailed knwledge f the risks assciated with cntract wrkers and the best practice methdlgies fr minimising thse risks t yur rganisatin is a vital tl t help yu prtect yur rganisatins bttm line and reputatin.
Other cmmn risks Risk type Insurance risk Cmment Hw d yu ensure all cntractrs have adequate PI, PL and WC insurance? Impact / cnsequence Yur rganisatin cnjined in legal actin in the event f a claimable event Remedy Outsurce insurances and cmpliance review t CXC Glbal Statutry and Cmpany plicy risk Hw d yu ensure all cntractrs read and acknwledge plicies and updates? In a sexual harassment case yu are withut prtectin if yu cannt prve the cntractr understd and acknwledged yur cmpany plicy. Outsurce plicy management t CXC Glbal Visa Expiry risk If yu have cntractrs wrking n Visas, hw d yu systematically ensure expiring Visas are identified and actin taken? Directrs are liable t custdial sentences. Outsurce Visa expiry management t CXC Glbal Cntract expiry risk Hw d yu ensure all cntracts are renewed r cntractrs terminated in line with expiry dates? A cntractr withut a cntract is likely t be an emplyee Outsurce Cntract Management t CXC Glbal.
ABOUT CXC. CXC Glbal, a leading supplier f cntingent wrkfrce slutins, every day helps thusands f rganisatins (and individual cntractrs) decrease csts and increase prfits by prviding innvative cntractr management, cmpliance, risk mitigatin, salary packaging, payrll and remuneratin slutins. Funded in 1992 CXC Glbal has ffices n 5 cntinents in 20 cuntries and has led the develpment f new technlgies and initiatives enabling bth crpratins and individual cnsultants t adapt in tday s high perfrmance wrk envirnment. CXC Glbal assists: Businesses, wh want t reduce csts, mitigate emplyment risk, imprve perfrmance reprting and efficiency, and increase their talent pl while attracting and retaining the best and mst flexible wrkfrce. Recruitment Cmpanies wh want fcus n their cre recruitment business by helping them minimise administratin and imprve the attractin and retentin f cntractrs, reduce n csts such as payrll tax and insurances, and reduce their risk in regards t emplyment, taxatin and statutry laws. Prfessinal independent cnsultants wh want t maximise their incme and minimise tax bligatins while increasing their financial status with the least amunt f administratin. CXC Glbal prvides persnalised expert guidance and tailred remuneratin slutins cvering all available tax structures. CXC Glbal. The glbal leader in innvative Cntractr Remuneratin & Cntingent Wrkfrce Slutins. Visit www.cxcglbal.cm fr mre infrmatin.