With the Harper competition law review reporting back on 17 March, contracting laws are likely to be highlighted as an area which could make the labour market more competitive.
Support for an overhaul of contractor laws is likely to get further support when the Productivity Commission Inquiry into Workplace Relations reports in November.
Small Business Minister Bruce Billson has signalled that the Abbott Government will look at legislative changes to workplace laws that restrict the use of contractors.
The Minister has also flagged the Government’s intention to review the PSI rules.
Professionals Australia CEO Chris Walton said that the PSI rules have long been an issue for contracting and consulting members, particularly in the Engineering and IT areas.
“The 80/20 rule has particular consequences for engineering and IT professionals who may be engaged on a project for a period longer than 12 months.”
“One of the unintended consequences of the 80/20 rule is that it forces professionals to diversify their client base in a single income year simply to satisfy the rules and this works against dispersal of professional expertise – which is of course not good for business looking to engage skilled expertise in the form of a specialist consultant.”
“The fact that a contractor is engaged on a project which runs for longer than 12 months”, said Mr Walton, “should not mean that they are penalised and denied legitimate business tax deductions.” “The PSI rules do not always reflect the reality of commercial practice,” he said. “We are keen to see this area of the PSI rules reviewed while maintaining protections to ensure that unscrupulous employers do not use the changes to avoid their employment obligations or unfairly divert professional liability.”
“The results test also creates particular problems for professionals delivering engineering, business and IT services,” Walton said. “To satisfy the results test, at least 75% of the work must be for producing a result and while this might be straightforward for some, it’s more problematic when applied to a professional or consultant paid to make recommendations, give an opinion or set up and test an IT system. The requirement to supply the plant, equipment, or tools necessary to perform the work is also difficult to assess in the case of professionals or IT consultants, and liability for rectifying defective work is similarly difficult to apply to a professional paid to make a recommendation, give an opinion or update an IT system. Overall we have the view that many consulting professionals are disadvantaged by these rules.”
Mr Walton said that at present the PSI rules involve complex and confusing tests for determining if a person is a legitimate contractor. “We estimate that around 40 per cent of engineering contractors and consultants providing professional services have been caught by the 80/20 rule deeming them employees for tax purposes if they earn more than 80 per cent of their income from one client.”
“One way of addressing the anomaly while still ensuring unscrupulous employers don’t abuse the rules is to have the 80/20 rule be applied over a two to five year period to reflect the reality of commercial practice for professional contractors and consultants, and to resolve the issues around the results test for consulting engineers and IT professionals”, Mr Walton said.
For more information on the PSI rules, visit the Personal Services Income Information page.