Your small-to-medium-sized business may rely on gig or freelance workers during busy times or year-round. Or you may be on the cusp of hiring them.
These on-demand workers could be more convenient than permanent hires, but they still come with risks you need to factor into your insurance cover.
This article demystifies gig workers, explains the challenges they may pose, and suggests options for protecting your business.
What is a gig worker?
Gig workers do a project-based or fixed-term role. The Fair Work Ombudsman distinguishes gig workers – also known as independent contractors – from employees.
These are the characteristics of an employee:
- Obliged to accept work from their employer
- Wears a company uniform
- Uses a company vehicle/bike, tools, or equipment
- Must do the work themselves, not subcontract or delegate it
- Has fixed shifts
- Is entitled to paid leave and a minimum wage because they’re covered by the National Employment Standards
- Won’t need to pay for their own workers’ compensation insurance
- Does not pay their own tax and superannuation.
This Fair Work website compares employees with independent contractors. Even if a worker has an ABN, issues invoices, or does a particular type of work, this won’t automatically make them a contractor. One factor to consider is the work contract, which can be verbal, written or both. It is a contested area, though, and this Federal Parliamentary article indicates possible gig economy employment law reforms.
The Australian Small Business and Family Enterprise Ombudsman says it’s illegal for businesses to misclassify an employee as an independent contractor. Doing so means those businesses may need to back pay the worker any entitlements they’d missed out on.
As well, under the Fair Work Act, courts can penalise such businesses up to $16,500 for individuals and $82,500 for corporations for each contravention. Beware, too, of new provisions about unfair contract terms in small business agreements, including with independent contracts, which comes into force in November.
Prevalence of independent contractors in Australia
Australia’s digital gig economy began in 2006 with Menulog launching the country’s first online meal delivery service. Since then, Uber, Freelancer, Airtasker, and Upwork have become household names. They’re among the now 100-plus digital platforms operating within Australia.
The average gig worker is aged 18 to 34 and male, and does transport, food delivery, professional services, odd jobs, maintenance work, writing, translations, data entry, creative/multimedia, sales or care services.The most recent figures from the Australian Bureau of Statistics show there were 1.1 million independent contractors as of August last year. A quarter worked in construction, one in five in administrative and supports services while 14% were in professional, scientific and technical services. Independent contractors were most likely to be technicians, trade workers, labourers or machinery operators and drivers.
These sectors saw the biggest increases in the five years to August 2022:
- Agriculture, forestry and fishing (from 7% to 10%)
- Information media and telecommunications (10% to 12%), while
- Financial and insurance services dropped from 5% to 3.
Unique challenges when employing gig workers
Your biggest risk in employing gig workers is misclassifying them, as mentioned above. Other issues include:
- You’ll have less power to manage them and their work because they’ll have more autonomy than an employee
- It can be difficult to do your due diligence to check their bona fides
- Employing gig workers could open you up to new liabilities, including reputational damage if their work ethics or quality aren’t up to standard or your clients’ deadline
- Unreliability if they’re based in a third-world country with intermittent power and internet connectivity
- They may not have professional indemnity, public liability or other insurances, so if there are issues, you’ll need to sue them personally or try to claim on your own insurance
- You’ll need to check if there are tax implications for you, and
- Overseas gig workers, such as in developing countries, may shirk registering as an independent entity, thus increasing your liabilities for breaching labour laws
If you use a global job platform to hire an overseas-based remote worker, local laws there might mean that country will see you as an employer. That’s because the definition of an independent contract v employee differs across jurisdictions. Therefore, your worker may need that country’s approval to work there and you’ll need to comply with local employment and industrial laws. Lawyers Baker McKenzie offer this advisory insight.
Useful insurance options
If you’re working with gig workers, make sure you understand your risks and insurance. Safe Work Australia encourages employers of gig workers to check the rules of Commonwealth, state or territory workers’ compensation schemes in their region. Those rules might determine that the platform owner employs the gig worker. The workers’ compensation authority could seek to recover insurance fees from that owner.
When hiring, make sure that the gig worker has their own insurances, such as public liability. In the instance your business is sued where the gig worker is at fault, your business will be covered.
