The Fair Work Commission has recently ruled that a Philippines-based “independent contractor” was, in fact, an employee unfairly dismissed by her Australian employer. If you’re like us, you’re probably wondering how someone living in the Philippines, under an independent contractor agreement with an Australian company, could be classified as an Australian employee by the Fair Work Commission. The case of Ms Joanna Pascua v Doessel Group Pty Ltd sheds light on the challenges Australian businesses face when engaging overseas contractors and staff.
What Influenced the Fair Work Decision?
Ms Pascua worked as a legal assistant for a Queensland-based credit repair legal firm from July 2022 to March 2024. Operating from her home in the Philippines, she used her own computer, a company email address, and a PBX phone system that made it seem as though she was calling from the firm’s office.
Despite being labelled an independent contractor, Ms Pascua’s contract outlined that she would not receive any additional benefits aside from what was specified, nor would the firm be liable for taxes or other entitlements. She was paid AUD$18 per hour, capped at 8 hours a day, 5 days a week, and used a company-supplied pro forma invoice to bill her hours.
Initially supervised by a solicitor, Ms Pascua eventually became the sole investigator, conducting her work unsupervised. The Fair Work Commission’s decision was influenced by recent High Court cases (CFMMEU v. Personnel Contracting Pty Ltd and ZG Operations Pty Ltd and Jamsek) that focus more on the contract’s terms than the overall arrangement’s substance.
The FWC analysed the contract clause by clause, looking at whether it suggested an employment or independent contractor relationship. Ultimately, the FWC determined Ms Pascua was an employee as the contract implied she was working “in the business of another” rather than for her own enterprise.
Key contract elements included:
- Her tasks were mainly administrative and ad hoc duties, rather than a distinct profession.
- She couldn’t assign her work to others.
- Daily targets and ongoing tasks suggested ongoing work.
- The firm exerted control over her work through systems and daily instructions.
- Despite being invoiced by Ms Pascua, the hourly rate matched that of a full-time employee.
The FWC found that labelling the arrangement as an independent contractor belied its true nature. When it came to clauses excluding obligations like income tax payment, the FWC cited the Deliveroo Australia Pty Ltd v Diego Franco case, indicating these statements carried little weight in determining the true relationship.
New Definition of Employee and Employer
In August 2024, a new definition of employee and employer was introduced in the Fair Work Act, extending the High Court’s decision to rely on the actual nature of the contract rather than just its wording. This change ensures that clever contract drafting won’t suffice in defining an independent contractor arrangement. Now, the true relationship between parties considers the real substance and practical reality.
What Does This Mean for Employers?
The FWC’s decision in Ms Joanna Pascua v Doessel Group Pty Ltd serves as a cautionary tale for employers. Simply labelling a worker an independent contractor doesn’t make it so, and misclassification can lead to liabilities for tax, payroll tax, and workers’ compensation.
This decision also highlights how international employment arrangements can fall under the national workplace system. Regardless of an employee’s location, if your business is an Australian national system employer, the same rights and obligations may apply as for employees based in Australia.
The FWC also noted minimum wage considerations for paralegals like Ms Pascua. From 1 January 2025, wage theft becomes a criminal offence, making it crucial to ensure accurate classification of employment relationships, especially with international employees.
Tax Obligations and International Workers
We often receive queries about working with overseas, non-resident workers for Australian companies. If you’re engaging a non-resident individual, the first step is to correctly classify the arrangement. The ATO provides guidance on this, but specific advice may be needed.
Contactor or employee?
The first step is to ensure that the arrangement is correctly classified. As we have seen from the Ms Joanna Pascua v Doessel Group Pty Ltd case, this really depends on the specific situation. From a tax perspective, the ATO has outlined their guidance in Employee or independent contractor, but you might need specific advice if you are uncertain.
Implications for Employment Relationships
For non-resident employees, income should typically be taxed only if sourced from Australia. Double tax agreements (DTAs) may influence this. For example, the DTA with the Philippines generally prevents Australia from taxing employment income unless the work is performed in Australia.
PAYG withholding generally doesn’t apply if the worker is a non-resident deriving foreign-sourced income. Superannuation guarantee obligations also don’t apply if all work is done overseas by a non-resident.
Tax Implications for Independent Contractors
If a worker is a genuine independent contractor, only Australian-sourced income is taxed here. PAYG withholding isn’t necessary if the contractor provides an ABN, a DTA prevents taxation, or they don’t carry on an enterprise in Australia.
Payments to foreign contractors might require reporting to the ATO if your business provides certain services like IT, cleaning, or construction.
Will Foreign Workers Mean Your Business Operates Overseas?
Employing foreign workers risks your business being seen as operating through a permanent establishment in another country, potentially exposing you to foreign tax. Each DTA has unique definitions, so obtaining advice is crucial to ensure compliance with obligations.
Navigating these complex areas requires careful consideration and often, professional advice. At Heany Business Group, we’re here to help guide you through the intricacies of international employment and tax obligations.
