Employee or Contractor ?
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In Short
- Assess your business’s readiness before hiring by evaluating workload, efficiency, and budget.
- Prioritise hiring adaptable candidates who align with your company’s culture and growth trajectory.
- Implement effective onboarding and management strategies to set new employees up for success.
Tips for Businesses
Before expanding your team, ensure your business can support the new role financially and operationally. Focus on hiring individuals who are adaptable and share your company’s values to foster a cohesive and resilient team. Establish clear onboarding processes and provide ongoing support to integrate new hires effectively.
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A business’s success depends on having the right people at the right time.
Challenges that are familiar to any new business, include:
- assessing whether you can afford a new hire.
- competing for talent with established companies; and
- setting our team members up for success.
53% of business owners expect to hire or fire employees in the next 12 months.
This guide aims to introduce employers to Australia’s employment law landscape and share best practices around recruitment and retention.
Having a process to quickly test for the skills your business needs can help you scale up and reach your next milestone faster. So, whether it is your first hire or your fiftieth, this article seeks to help you understand the moving parts behind building a high-performing team.
Table of Contents
Assessing the Right Time to Hire
Most businesses start with one person wearing many hats—making sales calls, managing new relationships with suppliers, and setting up social media accounts. As the business grows, you will look for new hires to help take it to the next level. But hiring can be both emotionally and financially draining. There is a risk that there will not be enough work for your new starter.
Before advertising the role, you should assess current workloads to help answer the following key questions.
- Is a dedicated person required for the role? Consider whether an existing employee can absorb the work into their role (without working regular overtime).
- Are there any processes you can implement to improve efficiency? You should regularly review the efficiency of internal processes to identify what roles to consolidate or improve using technology (e.g. outsourcing or automating a data entry job).
- What tools will your new hire need to do their job successfully? For example, will you need to purchase a phone, laptop or fuel card, and can your business afford this cost?
- Are there tasks for your new hire to work on immediately? Write a position description that details the new employee’s roles and responsibilities, as well as any key performance indicators (KPIs) they will be held accountable for.
- Have you identified the impact of any monthly or seasonal trends on your hiring? Seasonal trends can impact the hiring needs of your business. Anticipating these factors helps ensure that your business operations are not interrupted. For example, by hiring additional staff for the Christmas period earlier in the year, you can make sure that you dedicate enough time to training.
Does your business have the budget to hire someone new?
Case Study: Lachlan McKnight
Hiring new staff is expensive. From recruitment costs to the ongoing costs of employment (such as salary and training), you should always carefully assess whether your business has the budget to hire someone new.
Recruitment Costs
Many businesses engage a professional recruiter to source and vet candidates. Recruiters have lists of candidates on hand, so they can often fill a position quickly.
We’ve found that sourcing candidates ourselves produces better results for our business. This approach gives us full control over the hiring process and ensures that every candidate fits with our culture.
Recruiting in-house is time-consuming and occupies the attention of team leaders and HR professionals, so there’s a risk that their day jobs will suffer. Plus, there are the additional costs of listing open positions on job boards and flying interstate candidates for face-to-face interviews (yes, you should offer to cover candidates’ travel costs if you can!). Before recruiting, make sure you can afford the significant time it takes to do it well.
Ongoing Cost of Employment
The costs of employing a team member are more than the salary you agree to in their contract. You also need to pay ongoing costs (like 12% superannuation, as well as payroll tax) and provide essential equipment (like a desk, computer and software or tools). Ongoing costs vary by industry and state, so make sure you do your research.
Of course, the biggest cost is the new hire’s compensation. You should have in mind a salary range and a sense of how you will pay, for example, will you offer base salary only or will commission be on the table? It is easy to get excited about hiring an excellent candidate – but try not to blow your budget!
Remember that most team members will expect, at least, an annual salary increase and sometimes, every six-months, so keep this in mind when forecasting expenses.
The Cost of ‘NOT’ Hiring
You should weigh the cost of hiring against the return you expect to receive from the new hire. But you also need to factor in the cost of missing out on opportunities that you are unable to pursue without enough staff. For instance, if you have inbound leads who are not receiving the prompt attention of a sales rep, you could be missing out on the revenue from those leads. That’s why we always try to hire a couple of months ahead of the time needed. This is made possible by anticipating future opportunity using revenue forecasts.
Determining Who to Hire First
Who you hire first will depend on the industry you work in, your team’s skills and your business goals.
Who A Small Business Should Look To Hire First
Joan Westenberg (Director of Communications – FlareHR)
Once your business gets off the ground, you can better identify what tasks need an extra pair of hands. First hires are critical to driving growth and shaping your business’ culture because they will likely help you train other team members. So, it is essential to take the time to hire the right people.
As a small business owner, we suggest assessing your strengths and weaknesses and hiring someone who complements them. For example, if you are an expert in sales, you may hire an all-rounder who can assist with other parts of your business, like digital marketing, finance and general administration.
What to Look For in a First Hire
- Focus on the candidate’s industry expertise and work experience rather than their impressive job titles.
- Hire for potential and have a progression plan to help your future employee up skill over time and take on more responsibility.
- Invest in your employee by paying them well and providing professional development opportunities (e.g. external training or mentoring) to enable them to grow with your business.
- Hire someone with a background different from your own to encourage more creative thinking and problem-solving
An alternative: In the early days, we outsourced some core functions like payroll, accounting and administration. This gave us more time to focus on what skills our new hires needed to possess to help grow the business.
Types of Employment
It’s important to know who you’re hiring and for what purpose. This will determine your new hire’s employment status and impact the obligations you owe them, as well as their rights at work.
The examples below summarises the different worker classifications, using a clothing store as an example.
Full-time employee
Example - You hire a store manager who works full time at your clothing store in the CBD. As an employer, you must provide the store manager with the following:
● 38 hours of work per week;
● 20 days of annual leave per year; and
● 10 days of personal carer’s leave per year. The Retail Award will apply and set out further entitlements, including the manager’s minimum entitlement to wages.
Part-time employee
Example - you decide to hire a part-time sales assistant to work 25 hours each week (five hours each day) to help the manager during busier periods.
A part-time employee works fewer than 38 hours each week and usually works regular hours. They are entitled to the same benefits as a full-time employee, but these are adjusted depending on the hours they work (i.e. on a pro-rata basis).
In this example, you must provide the employee with approximately: 12 days of annual leave per year; and 6 days of personal carer’s leave per year.
Casual
Example - During the holiday season, you hire three casual employees who work irregular hours from week to week.
Because you don’t need to provide a casual employee with benefits like sick leave or annual leave, you must pay them a higher hourly pay rate. This is called casual loading.
All modern awards now include a term which gives a casual employee who works regular and systematic hours the right to request a full-time or part-time position after 12 months.
Australian Employment Framework
In Australia, employees have rights at work under the National Employment Standards (NES), industrial awards and employment agreements.
The pyramid below depicts where an employee’s rights and protections come from. The base is the minimum threshold of rights that an employee is entitled to. Each additional layer offers greater rights and protections.
As an employer, you cannot avoid the rights and obligations set out in the bottom two layers (the NES or an applicable award).
Employment Agreement
An employment agreement sets out an employee’s rights, as well as your expectations about their performance and duties. We have set out some standard terms that your agreement should address, as well as some questions your lawyer may ask when drafting your agreement.
Terms and Questions to Consider
Type of Employment. Is your new hire a full-time, part-time or casual employee? What hours will they work? What is their position title? What are their duties?
Compensation. What is your new hire’s salary? What does it include (e.g. penalty rates, allowances, casual loading, superannuation)? How often will you review their salary? Will you reimburse them for work-related expenses? If so, what process must they follow?
Superannuation. Will your new hire earn $450 or more (before tax) in a month? If so, you’re legally required to pay them superannuation, which is set at 12%.
Notice Periods. How much notice must your employee provide when they resign?
Probation Period. Will you put your new hire on a probation period? If so, how long will the period last? How will you assess your new hire’s progress and performance during this period?
Importantly, your new employee has paid leave entitlements during probation.
Intellectual Property (IP). Will your new hire be creating any intellectual property (IP) in their role (e.g. blog content)? Does your new hire know the consequences of disclosing your IP to a third party (e.g. a competitor)? Does your new hire know that you own any IP they create during the course of their employment?
Confidentiality. What confidential information will your new hire have access to (e.g. financial information, business plans, supplier lists)? Is there any type of confidential information unique to your business that the contract should specifically cover (e.g. specific client lists in a sales role)?
Non-Compete Provision. Would your business suffer a substantial loss if your ex-employee were to work directly in competition with you after leaving? If your ex-employee were to engage in direct competition with you close to your office, would this impact your business?
If so, you may need to restrict your former employee from working for a competitor for a period or within a specific area.
Leave Requirements. Will you offer any leave entitlements above those guaranteed under the NES? A full-time employee (other than a casual employee) is entitled to 20 days of paid annual leave per year. Does your employee handbook clearly set out how an employee should apply for leave, and how much notice they should provide?
Contractor’s Agreement
Contractors will need a contractor’s agreement. As with an employment agreement, your contractor’s agreement should address a number of standard issues.
Term and Questions to Consider
Scope and Delivery of the Project
Have you engaged your contractor to work on a specific project? What do you expect the contractor to deliver? When will the project begin and end? Can the contractor engage subcontractors to complete the work?
Compensation
What will you pay the contractor for their services (e.g. a fixed fee, an hourly rate, daily rates)? When will you pay the contractor (e.g. when the job is complete, within 14 days of providing the invoice)?
Superannuation
Is your contractor responsible for paying their own superannuation? If so, you should clearly state this in your contractor’s agreement.
Ownership and Use of IP
Will your contractor create IP (e.g. a software programmer writing the code for your business’ new subscription service)? Do you intend to own the IP the contractor creates?
If so, you need to state this in the contractor’s agreement expressly. Otherwise, you will have no right to use the IP when the contractor stops working with your business.
Non-Solicitation Provisions
Is your contractor in a client-facing role, or will they develop client relationships over time? A non-solicitation provision will prevent the contractor from asking former clients to follow them to their business.
Liability
What kinds of insurance do you need your contractor to have (e.g. public liability insurance, professional indemnity insurance)?
Confidentiality
What kinds of confidential information will your contractor be exposed to?
Is there any type of confidential information unique to your business that the agreement needs to cover specifically?
Sham Contracting
It is against the law to call a worker a contractor while treating them as an employee. This is called sham contracting.
There are Australian Taxation Office and Fair Work penalties if you mischaracterise workers to avoid your employment law obligations. You will also need to pay the worker any unpaid wages or leave entitlements.
If you are unsure of whether your worker is a contractor or an employee, you should seek legal advice.
CHECKLIST
- Draft a position description setting out key roles and responsibilities.
- Write down the skills your new hire should possess to succeed in the role.
- Determine what type of worker you will need to complete the tasks (i.e. an employee or independent contractor).
- Prepare an employment agreement or contractor’s agreement for the role.
- Ensure any rate of pay complies with the minimum set out in the Fair Work Act or otherwise under an award or enterprise agreement.
- Confirm what other legal entitlements and obligations you will owe your new hire including by checking any applicable award or enterprise agreement.
Key Takeaways
The need to hire employees is an encouraging sign that your business is growing. But when you are cash-strapped and time-poor, finding the best person for a role can be draining, emotionally and financially. And even if you can carve out the time to do it, finding and recruiting top talent is a massive challenge – particularly in a competitive job market. By ensuring that you have a consistent and comprehensive recruitment and onboarding process, your employees will start on the right foot.
James True
August 22
legalvision.com.au
