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Contract laws require close consideration

Contracts in the workplace

By Karen Crouch
Following on from her recent articles on establishing a practice, KAREN CROUCH examines the relevant employment contracts for employees of various categories.

When drawing up a contract, it’s essential to execute a formal arrangement that will assist you in defining roles and resolving disputes. It should also include potential amendments to duties or responsibilities that may require negotiation with an employee if a particular position needs to be modified to suit the developing, perhaps unforeseen, needs of the new practice.

Depending on the employment status of your staff, there are a number of contract options you can use to engage their services, e.g. permanent, casual, contractor, or licensee.

Contract of service

The most common model is the Contract of Service, also known as a Contract of Employment, issued by an employer who has control over the employee’s work duties and will generally be vicariously liable for any omissions on their part.

Employees are entitled to leave entitlements including annual leave, sick leave, long service pay and superannuation, and must be covered by the practice’s Workers Compensation policy.

In order to comply with the requirements of The Fair Work Act it’s important to note that an employer must ensure that employment conditions include the prescribed minimum standards.

"Issues of workers compensation, superannuation and payroll tax are complex areas to be considered when engaging an independent contractor"

They must also be certain that conditions are no less favourable than the standards provided for by the Australian Fair Pay Commission – in particular payment and terms of overtime work performed, sick and annual leave policies, as well as minimum pay rates related to the specific award under which the staff member is employed.

Full time employees are paid a set salary and there are no GST issues to consider. Part time employees may also be paid a set salary, while often it may be based on an hourly rate plus or minus superannuation, as negotiated between employer and employee within the award rates applicable to the particular level of employment.

Contract for service

There are essentially two types of contracts for external service providers such as tradesmen or clinicians – Contractors or Licensees.

Contractor (example a clinician): a person engaged as an individual or through their personal entity to provide services to all clients of the practice, utilising all business facilities and resources, regardless of whether patients were introduced by the practice owner or contractor. In the optometry industry, verbal agreements with ‘contractor clinicians’ are relatively common.

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Typically known as an Independent Contractor Agreement, the very nature of a Contractor (non-salaried employee) generally dictates the manner in which they conduct their business. An employer’s responsibilities in relation to a Contractor will depend on whether they operate through an incorporated entity.

Issues of workers compensation, superannuation and payroll tax are complex areas to be considered when engaging an Independent Contractor. In some instances, the Contractor may be a “deemed employee”, which means the practice could be liable for these entitlements even though the engaged person is not an employee. Close consideration of the rules relating to these items must be considered on a case by case basis.

A Contractor is only paid for work performed (e.g. on a percentage of income, commission style basis or task related fee) rather than a set salary. Depending on the employer/contractor contract structure, GST is usually payable in return for services provided.

Contractors are unable to access wrongful dismissal laws in relation to termination of their contracts. Instead, they have to prove the contract was unfair or that the employer breached conditions.

Licensee (example a clinician): a person employed under their own incorporated entity, engaged to provide services to their own clients, utilising practice facilities and resources. A formal Facilities Agreement or similar contract invariably covers this category as terms and conditions differ markedly from those of contractors or employees. Consequently, licensees have the right to remove records of their patients when they cease employment.

Industrial award and AWAS

An industrial award is a determination of an Industrial Tribunal that establishes salary levels and conditions of employment for workers in a specific industry including definitions of various ‘levels’ at which employees may be rated in keeping with their roles and responsibilities.

An Australian Workplace Agreement (AWA) is a contract offered by an employer that can overrule the working conditions set out in an Industrial Award or Enterprise Agreement.

However, there are certain statutory privileges that cannot be contracted out of, for example, anti-discrimination provisions.

Enterprise agreement

An Enterprise Agreement is a negotiated deal about the conditions under which employees are employed within a business. An Enterprise Agreement is negotiated by an employer and employees or by their union representative/s.

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