The nature of the entertainment industry is to engage workers for short periods of time to provide their skills and expertise on a production. Generally, many employers in the film, television and theatre industry will engage their cast and crew as independent contractors for this reason.
However, just because the length of a job on set maybe short, this does not necessarily mean that a worker will meet the criteria of a contractor. In fact, in most cases these workers are employees. There is a danger sometimes in the entertainment industry due to the informal nature of the creative process, of not dotting the i’s or crossing the t’s, when it comes to adhering to employment laws. Misclassification of a worker can have dire consequences for both employers, employees and the production as a whole, no matter what the size – we see it all the time!
If an employer has deliberately engaged a worker under the same condition as a normal employment relationship but classifies the worker as an individual contractor, then this is defined as Sham Contracting. The sham contracting provisions of the Fair Work Act together with the protections and rights under the Independent Contractors Act (2006) prohibit the purported engagement of an employee as an independent contractor.
This can have two effects:
- Workplace sham arrangements can present significant risks for employers seeking to avoid employment related statutory obligations, such as superannuation, payroll tax, workers’ compensation, leave entitlements and withholding tax.
- Independent Contractors who should have been classified as employees, may be owed certain entitlements. Employers may face a claim for back-pay of unpaid leave entitlements, overtime and compulsory superannuation contributions owed to the worker if the court finds that there was a sham contracting arrangement. These entitlements can add up and end up being a costly lesson to any production.
- Sham contracting can affect worker’s compensation and insurance.
The consequences of misclassification of workers in any industry, can have serious consequences for both parties. Employers who intentionally disguise employees as individual contractors face serious financial penalties. Investigations by Fair Work and the Australian Tax Office may lead to financial exposure with courts permitted to impose a maximum penalty of $12,600 for individuals and $63,000 for corporations for misclassification of workers. This can significantly affect the success of a production, not to mention the bad press that can ensue.
Likewise, cast and crew may miss out on receiving critical entitlements that could assist with their financial security and safety. These include protection against unfair dismissal or redundancy pay, paid sick, holiday and long service leave, overtime, penalty and public holiday rates, travel allowances and minimum rates of pay. Both employers and employees should be aware of these basic entitlements.
In addition to the above, there are other consequences under the Act that may affect employment situations. For example, most creatives will use an ABN to invoice for their services. However, if you technically classified as an employee, your employer maybe in breach of the Fair Work Act for requesting you provide an ABN. There are even penalties for not providing correctly structured pay slips!
Regardless of whether your project is small or large, the correct classification of an employee or contractor is not to be taken lightly. The classification is dependent on many variables and an examination should be undertaken as a preventative measure to ensure a project is adhering to employment laws. If you are an employer who is unsure of whether you have misclassified your contractors or an independent contractor seeking to clarify your position, please do not hesitate to contact our office, to undergo an employment examination for tax and super purposes. We can review your employment agreements and assist you in ensuring they are drafted in accordance with the law, to avoid penalties down the track. We also recommend that you speak with your accountant about this who will be able to provide you with taxation advice.
If you are a planning to work in the United States in the entertainment industry, you may also like to view our article here
Rebekah O’Sullivan, Senior Associate, Entertainment, Intellectual Property and Immigration Lawyer Registered Migration Agent (Lic No. 1568412)
