Tony Ince, Mostyn Consulting

In a recent decision (Floorplay Pty Ltd v FC of T [2013] AATA 637), the AAT has found that crew, including the skipper and deck hands, on fishing boat were “employees” for the purposes of the Superannuation Guarantee legislation.
The crew were engaged under a “Share Fishing Agreement”, common in the industry. The Agreement provided that the crew met a proportion of the expenses and received a proportion of the catch.
The Tribunal reviewed a number of factors and, in considering the totality of the arrangements, concluded that the crew were not carrying on their own businesses but were employees of the boat owner. The Tribunal concluded:
“The control of Floorplay extended to the catch and how it was dealt with. The crew members were not at liberty to treat the catch as the product of their endeavours which they could sell as and how they saw fit in their economic interests. Instead they were obliged to have a catch processed and sold through one of Floorplay’s associated entities. It is, as well, significant that the parties agreed that Floorplay would deduct PAYG Withholding Tax payments from amounts otherwise payable to the crew members. Such an arrangement is not consistent with the notion that the crew members are operating independent businesses; it is, instead, suggestive of the relationship of employer and employee.”
The decision of the Tribunal is not new or particularly ground breaking. What continues to amaze me is that employers continue to hide their (collective) heads in the sand in regard to this issue. I am well aware of the economic and market forces at work in this type of situation. Often, employers cannot get people to work for them if they take them on as employees, withhold tax and super and pay the workers comp. But to continue to ignore the situation is a recipe for disaster.
What’s at stake?
By treating workers as contractors when they are (arguably) not, a business leaves its self open to a number of potential tax liabilities. These can threaten the very viability of the business. While each tax has a slightly different definition of “employee” (or “worker”), it is worth considering them together.
The SGC is a 9.0% impost on the gross wages. The ATO has, to date, been reluctant to be too aggressive on this and it is our experience that they tend to only go back a year or two. The liabilities we have seen to date have been manageable, even taking into account potential penalties.
The various Offices of State Revenue, on the other hand, take a particularly aggressive stance in relation to payroll tax. In Western Australia, any assessment for payroll tax on employees can go back 6 years and include substantial penalties. If the business has a significant “contract” workforce, this assessment can be devastating.
Workers compensation in Western Australia is not a huge concern in terms of retrospective payments. Unlike other jurisdictions, there is usually only payment required for the current year. The big issue arises when a worker hurts themselves and is held to be covered by your workers comp. Apart from the obvious distress caused by the injury, the business can find itself in real trouble if no payments have been made for the worker.
Finally, PAYGW can also be an issue but tends to be at the lower end of the scale in terms of ATO audits as well as past liability, if assessed.
What have we learnt from this recent case?
The facts of this case again show the problem of trying to address potential problems without getting the proper advice. The boat owner understood the problem but sought to overcome it by getting someone else’s Agreements and using them for himself. To make matters worse, the actual terms under which the crew worked were different from the terms of the written Agreement.
Identify if you have a potential problem in the area of employee/independent contractor. If you have, seek professional advice on the best way to deal with it in terms of all of the legislation that will affect you. Make sure that the agreement you have with your workers reflects the actual position.
Deal with it now; it won’t go away.