The Hidden Legal Risks of Hiring Remote Contractors in Australia

Hiring remote staff or freelancers can be a smart move for businesses seeking agility and cost savings. However, Australian businesses need to be aware of the legal risks associated with misclassifying workers. When a worker is treated as a contractor but the nature of their work reflects that of an employee, businesses may unknowingly breach workplace laws—exposing themselves to significant liabilities.

A recent case, Pascua v Doessel Group, offers a clear warning. A Queensland law firm engaged a legal assistant in the Philippines under a contractor agreement. While the contract labelled her a contractor, she worked set hours under supervision, used the firm’s systems, and was paid a fixed hourly rate, below Australia’s minimum wage. The Fair Work Commission ruled that she was, in substance, an employee and therefore entitled to bring an unfair dismissal claim. This decision highlighted that the true nature of the working relationship, not the contract, determines employment status.

Australian law applies a holistic approach to assessing whether someone is an employee or contractor. Key factors include who controls the work, whether the individual works independently or is integrated into the business, and how they are paid. Since August 2024, the law now explicitly considers both written agreements and the actual working relationship. Even a watertight contract cannot shield a business if its practices tell a different story.

The risks of misclassification are serious. Businesses may be required to backpay wages, provide leave entitlements, and pay unpaid superannuation. There are also potential penalties under sham contracting provisions of the Fair Work Act, with fines reaching up to $495,000 per contravention for companies. From 1 January 2025, deliberate underpayment of wages becomes a criminal offence, meaning directors and managers may face personal liability in extreme cases. Reputational damage and disruption to operations are additional costs few businesses can afford.

To mitigate these risks, business leaders should evaluate each engagement carefully. Consider whether the role truly fits a contractor model, and if not, employ the person directly, whether on a casual, part-time, or full-time basis. Written contracts should be used for all arrangements, but the day-to-day working conditions must align with the contract terms. Ensure pay is fair, and assess whether superannuation obligations apply, even for contractors. Staying informed about legal changes and reviewing your workforce structure regularly will help avoid surprises.

In some cases, engaging workers through an Employer of Record (EOR) or reputable outsourcing partner can help businesses manage compliance more easily, particularly when hiring overseas. These providers take on the employment responsibilities, reducing risk for the hiring company.

Remote work opens up many opportunities, but it must be done right. Misclassifying a worker may seem like a shortcut, but it can turn into a costly mistake. With the right knowledge and systems, businesses can build a compliant, flexible workforce that supports long-term growth.

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