Should you engage contractors or hire staff? Do your due diligence or put yourself at risk
Mon 7 August 2017 - 10:35 amEntrepreneur
The question many business owners face is whether to use contractors and freelance workers or to hire staff.
There are obviously a number of factors to weigh up before making a decision either way, but with the rise of the sharing economy, businesses are presented with a wide range of employment options, no matter what industry they operate in.
In Australia, approximately 9% of all employed people are contractors, a figure that is expected to continue to increase. Looking at the increasingly popular online marketplace business model – global ride sharing app Uber and Australian-based Better Caring are just two examples – the decision to operate entirely with independent contractors is unprecedented.
While Uber has seen meteoric growth both globally and in Australia, the current Fair Work probe into its employment model and supposed “sham contracting” is a great example of why the contractor model may not be the best, or even the most feasible option when building a services marketplace here in Australia. This probe should be on the radar of every contractor-based services provider in Australia.
My business, Scooter Tutor has many elements of an online marketplace, although there’s one key feature that we have not adopted; rather than hiring contractors, we employ each of our 250 tutors across Australia.
Here’s why having staff over contractors could be ideal for your company.
It benefits workers
The decision to employ all of our tutors wasn’t taken lightly. We realised that young people today want more from their employer, and providing added benefits such as superannuation, insurance, and fully managed finances is highly sought after; particularly at tax time.
Being an independent contractor requires having your own ABN, an understanding of the requirements for super and tax contributions, and ensuring you are properly insured for the services you deliver.
There are so many things to consider as an independent contractor and sometimes it can even put people off applying for certain jobs. Taking care of these things not only puts your team at ease but allows for a bigger marketplace, and further business growth.
Benefits to the business
The benefits to employees isn’t the only reason to hire staff over contractors.
For business owners, having employees means that you are able to have greater control over your staff and the work that they can provide.
Particularly in an industry where most people work remotely, it is much easier to ensure everyone is abiding by rules and offering the highest quality of services.
This process allows business owners and managers to have more confidence in what they are selling rather than being conscious of individual members potentially creating reputational damage.
Employing people can make them proud to represent your business which may also have follow on effects.
It’s no surprise that research shows people aged 18-34 want to work at companies such as Google, Amazon and Apple the most, as these are brands people are proud to embody.
Not only can it position your company as an employer of choice but it can generate further business.
Under Australian employment law, the lines are clear on what distinguishes a contractor from an employee, and the consequences of getting it wrong are severe. Should an employer get it wrong, not only are they required to pay outstanding payroll tax, retrospective PAYG and super contributions on behalf of each employee, they need to pay interest and penalties that are handed down by the ATO.
These things certainly shouldn’t be taken lightly, and there are more than enough examples of businesses getting hit with huge payments in similar situations. In fact, there’s already substantial international precedent in the case of Uber, where rulings have been handed down, or class actions have been filed, stating that drivers of the company are actually employees and not contractors.
If too many businesses take Uber’s lead in the contractor business model without doing their homework, we may end up seeing a lot more Fair Work probes over the next few years, which will be to the detriment of both workers and customers across the country. It’s the kind of processes and practices used by Scooter Tutor that should allow more businesses in Australia to operate efficiently in today’s digital world, while still providing great services to their customers, and “doing things by the book” as far as Australian employment, tax and superannuation laws are concerned.
About the author
Sam Robertson is the co-CEO of Scooter Tutor, a tutoring company connecting students with qualified and experienced tutors across Australia. Robertson and his co-founder Cameron Schmidt recently spoke to Dynamic Business about the ‘fragmented’ tutoring sector and how their technology platform is helping other businesses work at scale. See: Scooter Tutor’s software is driving efficiencies in other sectors, says edutech start-up’s co-CEO