‘In the race of life, always back self-interest — at least you know it's trying’

Saturday, September 16, 2017

Former Prime Minister Paul Keating loved this quote of his long-time mentor former NSW Premier Jack Lang. I was reminded of its currency and utility recently, when I read that the Association of Superannuation Funds of Australia (ASFA) had made an (overdue) entrance to the public debate about the costs and benefits of the emerging “gig” economy — let’s be honest, it’s mainly costs.

It seems the “penny has dropped” for the superannuation industry. It has woken up to the fact that if workers are missing out on superannuation, then their industry is missing out on revenue. It is only a matter of time before the federal government comes to a similar realisation — that a giant app-enabled wealth transfer is taking place right under its nose and taxpayers are the mugs.

By (mis)classifying workers as independent contractors to avoid a requirement to pay into employee superannuation funds, wealth is being transferred — stolen — from individual workers and governments to gig economy “entrepreneurs”. When workers who are, for all intents and purposes, employees, are classified as contractors, federal government receipts of PAYG tax decline and state governments, which levy payroll tax on employers, also forego revenue.

So, it’s not just the workers being ripped off, it’s all of us.

Workers’ rights

There has been a great deal of policy focus on the issue of workers’ rights in the gig economy lately. Most of that focus has been on the individual worker or industry level impacts of a gig economy, with less on the economy-wide impacts. But that is changing now.

Momentum for a better deal for workers is growing all the time. The ACTU, the Victorian Trades Hall Council, several unions from the entertainment and the health sectors, think tanks, advisory bodies and many individual columnists have contributed data, anecdotes and forecasts to what is becoming a groundswell of concern about the apparent stripping away of worker protections in the App Age.

The Productivity Commission, the Senate and the Fair Work Ombudsman have conducted inquiries into the impact of the gig economy. But the hand wringing has not amounted to much in terms of regulatory or policy responses.

The policy and regulatory inaction of the past few years has left an emerging part of the economy to effectively operate unchecked, chomping away at workers’ rights as it grows. What these inquiries and reports did yield was a better understanding of the problem.

As the Senate Committee concluded in its report, many companies in the gig economy are adopting what amounts to strategic “sham contracting” to short-change workers. The Senate and others identified that because many “gig” workers are treated as independent contractors or “entrepreneurs” rather than employees, they were put in a vulnerable position where they must bid for work — and the customer is free to select the cheapest offer.

“The worse or more desperate a person’s financial circumstances, the less they might agree to work for,” the Senate report said, noting that such workers had no security of income, superannuation or employee entitlements such as minimum wages or paid leave.

However, it looks like the hiatus that often comes between understanding a problem and finding solutions is beginning to end. This month, ASFA released a discussion paper titled Superannuation and the Changing Nature of Work

ASFA estimates there are about 100,000 workers in Australia who use web-based platforms to obtain work on a regular basis. This is about 0.8% of the workforce. Growth in worker numbers in recent years has been strong. In Australia, as in many other advanced economies, some platforms are recording double-digit rates of growth in worker numbers a year.

Given that there is a tendency for economic transactions to be under reported, it is reasonable to assume ASFA’s estimate of 100,000 is lower than the reality. It is also a figure that will grow exponentially in the coming three to five years if international experience is a guide.

Superannuation

ASFA wants the compulsory superannuation system overhauled to ensure workers employed by the likes of Uber, Deliveroo and Airtasker can build retirement nest eggs.

Australia’s Superannuation Guarantee (SG) system requires employers to make superannuation contributions on behalf of their employees — but not contractors — equivalent to 9.5% of gross ordinary-time earnings.

The SG was developed in the early 1990s for broad coverage of the workforce, using wide definitions of employer and employee. Its intention was to make superannuation available to as many Australian workers as possible.

However, even for workers who are considered employees under the law, employers may not be required to pay SG contributions under certain conditions. Most relevant of these for gig economy workers is that employers are not required to pay SG contributions for employees who earn less than $450 in gross earnings in a particular calendar month. This would affect some gig economy workers who have, sometimes several, temporary employee arrangements.

ASFA is less concerned about the application of the SG to all contractors as it is to its application to what it terms “dependent” contractors — as seen in the ridesharing or delivery driver model. Dependent contractors are workers who are engaged under a commercial contract but who have work arrangements, particularly with respect to the degree of worker autonomy and capacity to determine price, which more resemble those of an employee.

Contractors

Contracting is not new. Contractors falling outside of the SG was deliberate, and sound policy when the scheme was created in 1992. For decades, contractors and freelancers have operated outside of the scope of the SG. These were envisaged to be, and until recently generally were, professionals, who can sell high-value parcels of work and have the economic confidence to fly without the safety net of a regular income. They can self-fund their superannuation and self-insure against loss of income due to illness or accident.

The new “contractors”, the workers of the gig economy — many of whom are young and/or from non-English speaking backgrounds — are selling very low value parcels of work in a market with no floor price and so cannot afford to DIY super and insurance.

Uber and others can say their drivers are just the same as consultants, plumbers, lawyers, graphic designers or even freelance writers, but they simply are not. The new contractors are price takers not price setters, and that is why they need protection from exploitation.

This is a subtle, yet key point to understand. Independent contractors and dependent contractors are two very different things. It is a point which is, apparently, not very easy for some to grasp.

The gig economy

Last month I wrote a piece for these pages about some of the diabolical deceptions and entrapments entangling the growing number of Australian workers currently competing with each other in what is called the “gig economy”.

The intent of the piece was to expose the cynicism that sits behind the strategic misuse of language by the gig wolves to appear more sheep-like. It sought to illuminate some of the hollowness of the promises of “flexibility” in a no-work no-pay dynamic and to bring attention to the personal risks workers attract when engaging in a protection-free (no superannuation, worker’s compensation cover, sick leave etc) employment market.

If the feedback I received is any indication, the modern-day piece workers of Australia are out there in great number — and they are wising up to the con.

They are feeling the pain. They work in ridesharing or as delivery drivers or couriers — sometimes all three. In many cases they work more than full-time hours. And, while they all agree they are generating some cash income, when measured against hours spent they are making well short of minimum wage. Some, especially those seduced into the dark world of ridesharing vehicle financing, are working more than 40 hours a week just to ensure the payments are made on the car they leased to set them “free”.

Included in the feedback I received was a venomous diatribe (from someone claiming to be a gig economy entrepreneur) who thought it was “outrageously hypocritical” of me to be writing on such matters when I myself was a freelancer.

I encouraged my correspondent to consider the differences between dependent and independent, between price setting and price taking, and between choice and exploitation.

I also inquired whether the barrister representing the exploited gig economy workers in court or the Fair Work Commission (when they sue for unpaid superannuation or to recover stolen wages) will be accused of hypocrisy? Surprisingly enough I didn’t hear back, but hopefully we will soon find out.

The honeymoon glow is fading away from the gig economy. Reality is butting into rhetoric and reality is winning. A realignment will come.

I had anticipated the crunch coming when the Fair Work Ombudsman released its report into Uber and Deliveroo, expected later this year. But, it was tax investigation agents and not the FBI that put Al Capone in jail; and George Calombaris thought his business and reputation was more at risk from undercooked chicken than an underpaid waiter. You just never know where the knockout blow will come from.

Could it be that self-interest in the form of the superannuation industry wins this race too? Could it really be the suits of Collins Street, with their financial leverage and political clout that save the current-day gig economy serfs from a lifetime of unprotected, sub-minimum wage, no work-no pay, no retirement savings slavery?

Well, at least we know they’ll be trying.

[Richard McEncroe is a Melbourne-based writer and public policy consultant.]

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