There have been a couple of court cases in Australia over the past two years whereby a casual employee who worked regular and systematic hours was found to have been warranted leave entitlements ordinarily available only to permanent employees.
It’s a complicated topic but one you can’t afford to get wrong. So we thought we’d clarify a number of things that may be useful for your business if you hire casual employees.
Defining casual employment
Whilst an employee may be designated as a ‘casual employee’ under a written employment contract, the subsequent conduct of the employer and employee can – in certain circumstances – can bring about an implied variation to that contract, such that the casual employee would be considered a permanent employee.
In other words, a ‘substance over form’ approach must be taken in determining whether an employee is, in fact, a casual employee.
Indicators of casual employment are instances where the employee’s hours of work are:
In short, there needs to be an absence of a firm advance commitment to provide ongoing work hours to the employee. However, this needs to be within reason – for instance, a work roster prepared in advance on a monthly basis wouldn’t cause an issue, but a roster prepared one year in advance would be problematic.
How entitlement problems occur
Once the basis of employment moves to that of a permanent employee, that employee then becomes entitled to corresponding leave entitlements – eg annual leave, sick leave and public holidays.
This can give rise to the employee being able to ‘double dip’ in the system, in that they are getting paid a loading within their hourly pay rate to compensate them for not being entitled to leave, but then also being entitled to the leave itself.
In the recent case of Workpac v. Rossato, the Federal Court upheld key principles of the earlier WorkPac v Skene decision (2018), which determined that, ‘Work which is regular, on-going and permanent in nature is not genuinely “casual” and therefore attracts entitlements such as paid annual leave.’
We encourage employers to carefully review and update the terms of all casual employment contracts.
Actions required and potential remedies for employers
If your business hires casual employees, there are steps you can take to help define employment more clearly and avoid both the risks of legal problems and ‘double-dipping’ within the system:
- Consider drafting a ‘Restitution’ clause into casual employment contracts whereby the loading component of the employee’s hourly rate is separately identified, with an express provision that you, as the employer, may set off the loading component against the value of any leave entitlements that the employee is later found to have.
- Review contracts of employment for casual employees regularly (preferably every 6 months) in light of the prevailing nature of the employment and either: 1) Reaffirm that the casual basis of employment remains appropriate, or 2) Consider transitioning the employee to a permanent employment contract (with commensurate loss of casual rate loading).
Of course, whilst this is ultimately a legal issue (and you therefore may wish to consult a lawyer or HR expert), it’s a good idea to check leave entitlements against your underlying payroll when preparing year-end accounts to identify any employees for whom leave isn’t being accrued and confirm that those employees are, in fact, casual employees. Your Accru Harris Orchard contact can assist with this.
Have additional questions about potential risks with casual employment contracts and any necessary payroll adjustments? Contact our team today.