Contract outworkers to be treated as employees

Legislation has been introduced in Federal Parliament – the Fair Work Amendment (Textile, Clothing and Footwear Industry) Bill 2011 – which proposes to extend the operation of most aspects of the Fair Work Act 2009 to textile, clothing and footwear (TCF) contract outworkers.

This is designed to ensure that outworkers in the TCF industry have the same terms and conditions, as well as other rights and entitlements, as other workers regardless of their status as employees or contractors. The Government said the objective of the amendments is to ensure that contract outworkers are taken to have the same rights and responsibilities as employees in the same position.

This is important for affected SMEs as it will have direct consequences for them.

Under the changes proposed in the bill, the person who directly engages a TCF contract outworker will be treated as their employer.

The bill also provides a mechanism to enable outworkers to recover unpaid amounts up the supply chain. Under the changes proposed, an outworker who has taken reasonable steps to seek payment from the person who is liable to pay them, will be able to recover an unpaid amount from another entity in the supply chain for whom work is done indirectly. This does not include retailers who sell goods produced by, or of a kind often produced by, outworkers, where the retailer does not have a right to supervise or otherwise control the performance of the work.

The amounts that may be recovered under these provisions will include not only wages or commission but also other amounts owing in relation to particular work, such as superannuation or reimbursement of expenses.

The bill has been referred to a Senate Committee for report by February 27, 2012, so it will not be finalised until next year. SMEs in the TCF sector need to be aware of these coming changes.

New FBT rules re: cars

Speaking of employees, the Tax Office has recently given its views on aspects of the new rules governing the valuation of car fringe benefits.

Briefly, new rules apply to valuing car fringe benefits using the statutory formula method – replacing the different statutory fractions with a flat 20% rate. They apply to new vehicle contracts entered into after 7:30pm (AEST) on May 10, 2011 (Budget night this year).

The Government’s intention was that changes made after that time to commitments made before 7:30 pm on May 10, 2011, such as re-financing a car, altering the duration of an existing contract or changing employers, would constitute a new “commitment to the application or availability of the car”, in which case the new rules would apply.

However, there remains some uncertainty as to what constitutes a new commitment. This gets technical, but it is important to know what the ATO’s views are.

The Tax Office says that, for any new commitments entered into during the transitional period (May 10, 2011 to March 31, 2015), an employer can choose to skip the transitional phase-in arrangements and apply the 20% statutory rate, provided an employee would not be worse off as a result or the employee has given his or her consent. According to the Tax Office, an employee would be “worse off” if placed at a direct financial disadvantage. The choice to skip the transitional arrangements is on a car-by-car basis.

If employees with existing novated leases are transferred from one company in a group to another as a result of an organisational restructure, the Tax Office considers this will constitute a new commitment as there is a new employer. So, the new rules would apply. Similarly, if there is a business acquisition via an asset sale and employees with package novated leases join the new employer who carries forward all entitlements, there is a new commitment as there is a new employer. Again, the new rules would apply.

It is not uncommon for there to be a delay between a car being ordered for an employee and the car being delivered, for example, where an employer negotiates with an employee and a salary packaging provider to put in place a novated lease arrangement in relation to a car.

The Tax Office considers that a commitment would generally be entered into, and would be financially binding, when the employer or the employee orders the car that is to be provided by way of a novated lease arrangement and there is a financial penalty if the order is cancelled.

The Tax Office says that altering the terms of the original commitment constitutes a new commitment at the time of revising the terms, where new contractual documentation replaces the original documentation. However, if the original commitment allowed the employee to decide certain specifications prior to taking delivery of the car, then this is simply a finalisation of the original commitment.

If a “fleet” vehicle is used by different employees during the year, the use of the car by those employees would not constitute a “commitment to the application or availability of the car” by each employee. If the employer’s original intention for the car has not changed, for example, the car was acquired for the purposes of being a “fleet” car and the car continues to be used as a “fleet” car, the original commitment by the employer is the most recent commitment. However, if an employee subsequently enters into a salary sacrifice arrangement in relation to a “fleet” car previously held by the employer, the signing of the salary sacrifice agreement could constitute a new commitment.

These FBT car valuation rules are important because they determine how much FBT an employer will have to pay, so SMEs should be sure they at least broadly are aware of how they work.

Terry Hayes is the senior tax writer at Thomson Reuters, a leading Australian provider of tax, accounting and legal information solutions .

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