Rent-A-Chair & Sham Contracting – are you at risk?
We often receive calls from members wanting Rent-A-Chair Agreements. These agreements, providing they are lawful, are often used by Salons as a way of utilising space and achieving an additional rental income. If you are a Salon owner who has a Rent-A-Chair Agreement in place or you are thinking about entering into one it is very important that you properly understand the implications of doing so.
There are times when Salons use these Agreements in the wrong circumstances and when they do, they are potentially exposing themselves to a prosecution for Sham Contracting and/or a claim for underpayment of wages.
We have set out in this article some information about Rent-A-Chair Agreements and the Sham Contracting provisions set out in the Fair Work Act.
What is Renting a Chair?
Renting a chair to a person is an arrangement where you provide a person with a portion of your Salon to use so that they can service their own clients. The person either pays you rent for the space that they occupy or they give you a portion of the profits they make in any given day or week. Usually renting a chair is arranged as a licence to occupy rather than as a subtenancy agreement and the arrangements are more often month to month, with each party giving the other a months’ notice to vacate. Often the person renting the chair needs to make use of common facilities such as bathrooms and kitchens and so it is important to ensure that any licence that is granted sets out your expectations regarding keeping those areas clean as well as the way in which they will be accessed. If this is done properly and lawfully the person renting a chair will be an independent contractor in some circumstances and simply a licensee in others.
When is Renting a Chair a bad idea?
If you are entering into an arrangement simply to avoid paying payroll costs such as leave entitlements or wages then a Rent-A-Chair Agreement will not provide you with any protection.
The arrangement should only be used when the person renting the chair is genuinely running their own business enterprise and the business is not in any way connected to yours, other than the fact that you operate from the same space.
Arrangements where the person renting the chair uses your EFTPOS facilities or booking facilities are blurring the lines and potentially exposing you to risk. If you are in such an arrangement you should seek urgent legal advice so that you understand the position you are in and can take steps to rectify any problems that have inadvertently arisen.
Section 357 of the Fair Work Act makes it unlawful to characterise a person as an independent contractor when in fact they are actually an employee. Significant fines and penalties can be imposed by the Fair Work Commission and industrial courts if you are prosecuted and convicted of sham contracting. A contravention of these laws attracts maximum penalties of $10,800 for an individual or $54,000 for a corporation, for each contravention. Each time you pay someone as a contractor when they were really an employee is a potential contravention and therefore sham contracting convictions can be very expensive. The Fair Work Ombudsman’s office is active in conducting investigations into such matters and in fact in 2011 published a Report on sham contracting and the misclassification of workers in the cleaning services, hair and beauty and call centre industries. In addition to the penalties imposed you will also be open to an underpayment of wages claim from someone who you paid as a contractor but was actually an employee. These costs could be considerable and may include the requirement for you to back pay wages, leave entitlements and allowances.
Unfortunately there is no single indicator of an employment relationship. The courts will look behind any written documents in place to ascertain the true nature of the relationship between you and the contractor. We consider that one of the key questions you should ask yourself with all of the contractors you engage is whether the person is truly running their own business enterprise or whether they are actually acting in accordance with the wishes and demands of your business. If the person is not free to come and go when he or she chooses or is not permitted to delegate work to others or refuse to take appointments, then that is a real indication that they are most likely your employee and not a contractor. If the person renting a chair is wearing your uniform, using your booking sheets, your EFTPOS and equipment, then he or she is probably an employee. It is very important to look at the whole of the relationship and not just whether he or she has an “ABN”. Simply having an ABN will not ensure that the person is a contractor – even though they are issuing invoices and collecting GST.
If you are at all unsure about whether your contractors or Rent-A-Chair person is a contractor or an employee it is critical that you seek advice sooner rather than later.
This IR information was supplied to the AHC by Bradbrook Lawyers. If you have any questions about LWOP please contact Bradbrook Lawyers on (08) 8227 2829 or by email: firstname.lastname@example.org.