I have heard before that it is illegal to hire persons as subcontractors when in fact they should be treated as an employee.
The problem is of course you have to fund your own legal action to prove that you are actually an employee if you cannot get union representation.
As far as workchoices is concerned they will not take any action for the "subcontractor" and the Office of Industrial Relations (OIR) will not go to court for you to get a determination if you are an employee or not. OIR do not consider it a breach of the Industrial law for a business to pay a person less than the award and in my case, 40% less than the award.
In the case of the orchestra if one member tries to take the employer to court he would have to fund a very expensive court action in the region of $100,000 plus, as the employer will be vigorously defending an action that could mean a payout to 18 people over a 6 year period of alleged illegal employment arrangements.

I have no problem with hiring everyone on a subcontractor basis,provided they are covered by an agreed base hourly rate of work,since both parties can profit from efficiencies and less overheads from rorts such as workers comp.

When workers have to take out their own insurances they are far more careful in regards pushing the envelope of both claims and getting the job done safely/correctly.

Trade Subcontractors in Sydney get paid at least $42 per hr,which is a far cry from the $19.00 per hr they would get as full time workers.

Arjay,
Out of that $42 a private Contractor has to pay his own insurances (which must include Worker's Comp and Public Liability at least), plus all overheads and GST.

If you are a Registered Pty Ltd Company you also have to deal with ASIC and incur significant additional accounting costs.

When you also consider not getting paid for sick leave or public holidays, it's probably closer to the $19 anyway with the added risk of not getting paid for work done or not getting the amount of work you need to stay in business.

The only possible benefit may be in taxation but if you are a Contractor whose income mainly comes from the one client (used to be 80%), the Tax Office considers you an employee of that client company anyway so you could lose your contractor status.

A contractors life is not what you may expect. The margins are generally so low, you need to get a lot of work just to cover costs.

All that this exercise generally achieves is the client passing many of his costs and almost all of risks onto the Contractor.

How can they both be better off?

I believe the big catch is with the taxation dept.
If the contractor charges to business expenses such things as use of
part of his home as an office, telephone expenses etc etc and the tax
dept decides he is an employee they can disallow the deductions.
So any offsetting expenses agains a lower payment can be lost 12 months
later.
He also has the expense of a GST BAS statement if his turnover is above
$50,000 pa.
There may be a ruling on this in the ATO.

Bazz, deductions for maintenance of home office, work-related telephone, tools etc are still claimable by the subbie even if the ATO deems his/her company to be a "personal services entity" (read deemed employee). This is because employees can also claim these expenses if they are properly incurred in the performance of work. There are a few restrictions on claims that a PSE can make - these mainly relate to not being able to pay your spouse a wage for performing admin work for your entity. Otherwise there is not that much difference.

Incidentally you are right about the 80% rule. However, you only have to consider this if you do not meet the results test. If you are paid on result (rather than hourly rate) AND you are liable to rectify any mistakes at your own expense, then you dont need to worry that all of your income comes from the one source.

Posted by sydney news, Wednesday, 27 June 2007 2:22:09 PM
"I have heard before that it is illegal to hire persons as subcontractors when in fact they should be treated as an employee.
The problem is of course you have to fund your own legal action to prove that you are actually an employee if you cannot get union representation."

Not so. The ATO is v interested in employers who illegally treat employees as subcontractors because it means that the employer is failing to deduct PAYE Tax and remit said tax to the ATO - and failure to remit tax is v serious in the ATO's eyes. Get the taxman to do your dirty work - they are used to it. Perhaps even just the threat of bringing ATO into the equation will change your employer's mind.

I have seen employers go to jail for this form of exploitation of the system.

Quite right Rob. They are also very interested in employers not meeting their super guaratee commitments, whether by illegally employing as a contractor or simply not paying.