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A services and facilities model is a specific business model that you can use to run your business. Here, you provide a space for another party to run their independent business. This type of arrangement is popular for healthcare practitioners, but more industries are increasingly applying this model. If you run a business, but are looking to transfer your employees to a services and facilities model, it is important to be aware of the potential risks you may be exposing yourself to. This article will outline the process you should take when transferring staff to a services and facilities model.

How Does a Services and Facilities Model Work Differently to Having Employees?

When you have an employee, the person will: 

  • represent your business;
  • act under your direction and control; and 
  • generate revenue and profits for your business.

You need to pay an employee in line with the relevant Industry Award or the National Employment Standards. You also need to provide entitlements such as: 

  • sick pay;
  • holiday pay; and 
  • superannuation.

In contrast, when you engage independent practitioners or contractors under a services and facilities model, you are providing a space for people to run their own businesses. You might also provide equipment and shared staff for the contractors. You do not have control over their actions to the same degree, and they retain their profits. 

Under this type of model, you do not typically pay practitioners. Instead, they are paid by their customers, and they pay you a servicing fee which can either be a flat rate or a percentage of their income. Typically speaking, you will not be responsible for paying a contractor: 

  • sick pay;
  • holiday pay; or
  • superannuation.

What is Sham Contracting?

Sham contracting is where workers will be engaged as independent contractors rather than employees so that an employer can avoid the responsibilities that they have to employees under the Fair Work Act. These responsibilities include:

  • minimum rates of pay;
  • award entitlements; and 
  • superannuation.

You should not you refer to your staff as independent contractors under a services and facilities model if the type of relationship you have with them is more indicative of an employment relationship. If you do, you are at risk of being fined by the Fair Work Commission or the Australian Tax Office for failing to provide these workers with the benefits they are entitled to.

How Am I at Risk of Sham Contracting?

You cannot simply move staff from being employees to being independent business owners running their own business in your space. Typically, your employees will have a contract of employment which you need to terminate before their contract as an independent business can begin.

If you want to terminate an employment contract and re-hire the same person to perform the same role as an independent contractor, there are significant risks that the Fair Work Commission or the Australian Tax Office could see that this is a sham contract.

How Can I Reduce My Risk Moving Forward?

If you run a business and are planning a restructure to a services and facilities model, it is important to seek legal advice to discuss the best way to engage staff members. It may be the case that you need to retain your current workers as employees but can implement a services and facilities model for future employees.

If a services and facilities model is appropriate for your business, the next step is to make sure you have a well-drafted contract setting out the terms of the relationship. This agreement should set out: 

  • the scope of services you are offering; 
  • how you are to be paid by the practitioners; and
  • detail liability.

Key Takeaways

A services and facilities model is an. arrangement where one party provides a space for independent practitioners to conduct their business. If you currently engage your staff as employees but would like to restructure to a services and facilities model, there is a risk of sham contracting. Before taking this step, you should get advice from a lawyer to minimise your risk moving forward. If you have any questions, contact LegalVision’s employment lawyers on 1300 544 755 or fill out the form on this page. 


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