‘Times…they are a changing.’
An ICT Industry Employment Roadmap by Ben Ashman, Managing Director, Recruitment Hive
It’s time to pay Long Service Leave for federal government ICT contractors by establishing casual employment, and long service leave, as ‘best practice’ for long-term federal government ICT contractors by recruitment (labour-hire) companies.
Rather than stumbling along with the lemmings in a fog of denial at the crumbling edge of employment law, Recruitment Hive has decided to lead the way to fair, sustainable and supportive employment for long-term federal government ICT Contractors.
In the establishment of casual employment, as best practice, of long-term federal government ICT contractors, by labour-hire companies, we will be the employer of record.
Recruitment Hive fully recognises and embraces our ICT Contractors as our employees and we will pay long service leave where it is due.
A high wire performance with no safety net
Just because ICT Contractors get paid well does not mean they should be denied their rights to the long service leave that all other workers in Australia are privileged to. Many, if not most, federal government ICT Contractors take few holidays and, after decades of work, can be at risk of driving themselves into the ground, straining their family relations and suffering adverse health outcomes.
Recruitment Hive recently confirmed to an ICT Contractor that they will be receiving 6 weeks of fully paid long service leave in July 2023.
This Contractor had not taken a holiday since 2018!
When ICT Contractors do have time off it is usually between contract assignments. They do not receive any pay during these times and may not know when, or even if, their next contract assignment will start.
We are committed to ensuring that as some of Australia’s most valuable workers, federal government ICT Contractors are not treated as machines of work, Recruitment Hive is leading the way to ensuring paid long service leave is made available to all federal government ICT contractors. They deserve it and, legally, they are owed it.
How legal decisions have resulted in ostrich behaviour from recruitment firms
There has been ambiguity in the relevant employment legislation and contradictory case law decisions, combined with ‘Business as usual’ and ‘This is the way things are done around here’ mantras of the industry. There has also been a lack of legal enforcement of sham contracting laws and workers compensation legislation. These factors have resulted in the federal government ICT contracting industry becoming highly disparate in its interpretation and application of employment law.
The result has been an unacceptable level of indecision, stasis and potential risk. This risk falls squarely on the shoulders of recruitment companies.
To nullify the ambiguity, Recruitment Hive has decided that the right thing to do is make casual employment and the provision of long service leave, to federal government ICT Contractors, our best practice.
This, in our opinion, currently complies with employment legislation and case law, however both have a reputation for changing on a frequent basis. Our provision of long service leave to our casually employed ICT Contractors wont though because regardless of the law, it is the right thing to do.
How did we get here?
In the past, recruitment companies could issue a written request to the A.C.T. Revenue Office, and would receive an exemption to payroll tax because their federal government workers were actually ‘employed’ by a sub-contracted payroll management company that had a wages bill under the payroll tax wages threshold.
This practice of the A.C.T. Revenue Office granting payroll tax exemptions led to the explosion in both the number of and size of Payroll Management companies within the federal government ICT contracting industry.
Numerous large payroll management companies would create hundreds of subsidiary companies filled with federal government ICT Contractors until the A.C.T Revenue Office’s payroll tax wage threshold (approx. $1.5 million per year) was about to be breached…and then they would create a new subsidiary company to fill up with ICT contractors.
This practice got so out of hand that the directors of Plutus Payroll were jailed, one for more than seven years, for having netted over one hundred million dollars in what was reported as Australia’s largest ever tax fraud.
‘It don’t seem broke, so let’s not fix it’
This became such an established practice over the years (the use of respected payroll management companies, not the fraud) that the recruitment companies providing ICT workers to federal government Clients ceased to even make a written request to the A.C.T. Revenue Office for an exemption to payroll tax. It became industry practice to expect payroll tax exemption if the recruitment company engaged that ICT worker as a subcontractor.
As a result of a lack of regulation and enforcement the ICT recruitment industry basically ignored the applicable Australian laws. It took until December 2017 for the A.C.T Revenue Office to send a reminder notice to the federal government ICT recruitment industry spelling out the changes to payroll tax exemptions legislated in the Payroll Tax Act 2011 (introduced 6 years earlier.)
This closed the loophole that allowed recruitment companies to avoid payroll tax.
The 2017 shock to the system
In December of 2017 the federal government ICT recruitment industry suffered
a seismic shock. Having been informed they would have to pay payroll tax on the wages paid to their ICT workers engaged through third party payroll management companies, the recruitment companies were forced to make a decision between going out of business or reducing the pay rates of their federal government ICT workers
(contractors).
Thus, in December of 2017 most ICT contractors working within federal government clients, through recruitment companies, took a 6.85% hit to their pay rates so the recruitment companies could remit the monies to the A.C.T. Revenue Office.
Even now, five years after the ending of these payroll tax exemptions, the use of third party (payroll management) Pty Ltd companies is still common within the federal government ICT contracting recruitment industry due to the legacy of ‘business as usual’ and “this is how things are done around here” that built up over more than 30 years.
What are ‘sham arrangements’ in the eyes of the law?
When a recruitment company offers work to an ICT professional within a federal government client under a Labour-Hire arrangement, as an independent contractor through a Pty Ltd company, they are likely doing so either through ignorance of the law or greed, motivating them to avoid the costly employee entitlement obligations due to that ICT worker.
By engaging the ICT worker as an independent contractor through a third-party Pty Ltd company, the recruitment company is effectively attempting to outsource their employee entitlement obligations to that company.
This is referred to within the Fair Work Act 2009 as Sham Arrangements and can attract a fine of over $82 500.
What employee entitlements are owed to federal government ICT contractors by recruitment companies?
In a Recruitment Hive blog post Federal Government ICT Contractors – Employees or Independent Contractors of Labour-hire companies? we describe in detail why Australian Employment legislation and case law obligates recruitment companies to provide paid long service and family and domestic violence leave to long-term federal government ICT Contractors engaged under labour-hire arrangements.
To subcontract out our employer obligations to the ICT professionals who perform work for our federal government Clients would leave us at risk of more than a $82 500 fine from the Fair Work Ombudsman for ‘sham arrangements’.
Further, if a recruitment company instructed or encouraged an ICT worker to engage with them as an independent contractor and then that worker decided to make a claim in a court of law that they should have been employed by the recruitment company as a full-time employee, due to the features and characteristics of long-term federal government ICT Contracting, that recruitment company would also be at risk of having to pay out full annual holiday leave, for however many years of work, at very high ICT contractor rates of pay.
Someone, or more accurately some entity, has to employ the ICT worker and take responsibility for providing their employee rights.
If it is up to a Judge, in a Court of Law, the employer obligation will fall on the recruitment company, not sub-contracted company. Employment legislation and case law is complex and even more difficult to apply to specific circumstances. It is made even harder for ICT recruitment companies as the laws are written to protect vulnerable workers.
ICT contractors are certainly not, in general, vulnerable workers, but the law must be applied equally to all Australians.
It is the right thing to do.
Ben Ashman, Managing Director, Recruitment Hive
