Confidential submitter

Submission to Victorian inquiry into the labour hire industry and insecure work

For decades, both Federal and State Governments have been aware of recruitment industry practice of misclassification of employees.

In 2016, despite numerous State and Federal Government and industry enquiries, and subsequent ATO rolling audits of the labour hire industry, the ATO is still struggling to identify the status of persons contracted to Recruitment Agents (RAs). Persons in the IT industry are almost entirely dependent on RAs.

The ATO and Fair Work have failed to pursue recruiters for PAYGW, SG, Payroll Tax and other employee entitlements. Those entities caught up in the Recruitment industry "sham contracting" are being denied the legislated concessional treatment of superannuation contributions afforded to employees and contractors alike. That the ATO investigates audits and then ignores the recruitment agency SG liability is incomprehensible.

I have consulted to major companies since the early 2000s. The contracts were all advertised by RAs.  The RA required a CV prior to interview. My CV was then forwarded to the host firm and the RA later arranged an interview with the host. Both the host firm and the RA described positions as independent contracting. No sick leave, holiday pay, overtime rates or long service leave etc. was paid. I paid my own PAYG Tax and received no SG payments.

In order to accept a contract , (if without an ABN and not registered for GST) Recruitment Agencies (RAs) mandate that payments be made via an interposed entity Company (CO). The RA also required CO to provide Vicarious Liability Insurance, Work Cover insurance etc. The RA's provide a list of Cos from which to choose. The CO also provided accountancy services.

Between 2005 and 2009 the ATO audited each of 55 RA's at least twice. These audits focussed on sham contracting, payments to trusts and failure to pay employee entitlements including SG.  March 2015, 9 years after the first of the relevant RA audits, the ATO issued a notice of intent to audit my 2010 tax return. ATO now deemed me to be an employee and would disallow my 2010 superannuation deduction. Despite its audits, it had failed in its obligation to pursue SG or PAYGW on my behalf.

The particular audit was a data matched income splitting audit. The data was not validated. The processes and procedures were untimely, haphazard, heavy handed, and flawed. Normal response times were disregarded. It was not until seven days prior to the final response date that I was able to speak with an ATO auditor. I proved I had not underreported nor split income as alleged. The audit should have been aborted.

Instead the ATO reverted to the true and previously reported figures but disallowed my superannuation deduction. I received no response to my initial correspondence and the audit was hastily rushed to completion less than a fortnight before expiry of a four year review period.

The non-routine audit appears to have not been forwarded to Senior Counsel or to have had any commissioner discretion.

Whether or not I was a contractor, my superannuation deduction was within the intent of legislation. I did not claim anything that was not available via salary sacrifice to an employee.

Second reading of the TAX LAWS AMENDMENT (SIMPLIFIED SUPERANNUATION) BILL 2006 

"The bill also strengthens contribution incentives for the self-employed by bringing them into line with those for employees. The self-employed will be allowed to claim a 100 per cent deduction for all contributions to superannuation"

The ATO was revenue neutral prior to the issue of an amended assessment. Despite having the right to object to the amended assessment, no-one had discretion to alter the claimed shortfall. After my objection and a later AAT application, the Penalty and SIC were refunded, but the shortfall remained.

ATO has required retrospective compliance of me. It has not considered, as required, the inequitable consequences of not requiring the same retrospectivity of the known, and repeatedly offending RA. The RA, now one of only five providers of IT recruits to the ATO, has been abrogated of its employer obligations.

Actions and inaction of the ATO and the RA and have dealt a quadruple whammy.

  • If an employee, for several years I unnecessarily paid the CO some $5000 pa for Work cover, vicarious liability ins etc
  • I did not receive PAYGW credits, SG, and other employee entitlements.
  • I was denied concessional superannuation to the $25,000 contribution cap.
  • My superannuation contribution was taxed twice. I have now paid more than 50% tax on that contribution. The status of that contribution has not been amended by the ATO as an after tax contribution, hence more tax may be payable on withdrawal.

The ATO auditor had a distorted view of my status. After a hasty audit decision, the ATO cannot determine who my alleged employer is and opinion repeatedly changes- from person to person and department to department.

The host business and the RA were the only parties with any control, but the ATO is currently alleging, the arm's length and now liquidated CO was my employer. I submitted timesheets to the RA as required and the host firm paid the recruitment agency for my services. As per ITAA 6-5(4) a taxpayer is deemed to be paid when the funds are first dealt with.

The CO was only involved as required by the recruitment agency to provide (at my cost) an ABN, GST registration, Work Cover, Vicarious liability etc. That CO had no control over the initial agreement, induction, places of work, contract rate, hours, work conditions, contract termination or anything related to my provision of services for the RA's client.

Any further Government inquiry appears to be pointless unless and until the State and Federal Governments unite to collate all the available data from previous investigations enquiries and submissions. These include, but are not limited to ATO audits of the Recruitment Industry, Inspector General of Taxation reports, Auditor General Reports, Fair Work investigations and various Independent Industry research and reports.

The Victorian State Government was recently subject of a labour hire industry enquiry and found to be using questionable practices.  If the Government cannot get it right, how is it expected of individual taxpayers.

Whether an employee or a contractor everyone is entitled to concessional superannuation contributions up to the legislated cap.

Until the Government clarifies Legislation and RAs are made accountable, the IT and other industry workers are being held to ransom by RAs.

In the interim, and without pursuing unpaid SG and PAYGW, the ATO targets and gouges victims of "sham contracting".

Page last updated: 20 July 2016