Using Contracts for Services

A contractor is a person engaged under a contract for service or a person provided by a labour hire agreement to meet an employer’s resourcing requirements. A contractor is distinct from an employee who is directly employed by an employer under a contract of employment on a permanent, fixed term or casual basis.

A contract for service is a relationship between an individual and an employing authority which does not form an employment relationship. It may include temporary personnel, labour hire or consultancy to engage the services of an individual.

A labour hire agreement is where an employing authority is provided with the services of one or more people through an organisation that specialises in providing labour. The employing authority has an agreement with the labour hire organisation or temporary personnel provider for specified labour services. There is no contract between the people provided and the employing authority.

Note: Consultants engaged to provide strategic advice to government in accordance with Premier’s Circular 2021/17 are not subject to Commissioner’s Instruction 41.

To determine if a person is a contractor or an employee, consider the whole working arrangement including, but not limited to, whether the:

• employer directs the work to be performed, how it is performed and location and hours; or if the person has control over these factors
• employer or the person supplies equipment and materials
• person has leave entitlements
• person is paid in salary or wages; or if payment depends on output not hours
• person can work for more than one person
• employer or person bears the risk for the work
• contract is expressed to be for service or of service (the terms of engagement).

The table below shows some of the differences between employees and contractors. If in doubt, employing authorities should seek legal advice.

Table 1: Comparison of employment relationship and contract for service

Further guidance on the difference between contractors and employees is available from the:

• Department of Mines, Industry Regulation and Safety – Private Sector Labour Relations Division: difference between subcontractors and employees in WA industrial relations system
• Australian Taxation Office: difference between employees and contractors for taxation purposes.

Examples

Contractor (labour hire): Employer hires a person through a labour hire organisation on the Temporary Personnel Services Common Use Arrangement to perform an administrative role for a short term. Employer pays the labour hire organisation which pays the person for their work.

Contractor (other): Employer requires a technical report to be completed and the specialist skills are unavailable in the public sector. Employer follows procurement policies based on the value of the work and contracts an individual with their own consultancy business, or who is working for/associated with a consultancy business, to carry out the one off project.

Employee: Employer appoints a public service officer on a contract of employment. Employee’s terms and conditions of employment (including pay, leave entitlements and hours of work) are set out in an award and/or industrial agreement. Employer sets their duties in an approved position description.

Clause 1.2 of Commissioner’s Instruction 41 lists the circumstances when an employer may engage a contractor. One or more of the circumstances described in (a), (b) or (c) must apply.

How to assess the availability of skills/expertise in the public sector

For circumstance (a), an employer must first assess the availability of skills or expertise needed for the particular role in the sector before engaging a contractor.

To do this an employer can:

• check for availability of skills/expertise (existing and surplus employees) with their human resources team
• check suitable recruitment pool applicants
• consult RAMS for surplus employees in other agencies who may have the skills/expertise
• search JobsWA to see whether a similar position has been advertised in the sector and, if so, check with the agency that advertised the position to see if they can access a suitability list or second an employee of the other agency who has the skills/expertise.

When is there a need for impartiality?

Circumstance (b) applies where work needs to be performed by an external person because of the requirement for independent, unbiased advice, for example an investigation into a human resources matter.

When is the need to fill the position urgent?

This occurs for circumstance (c) when the need to fill a position or undertake functions or activities arises at very short notice, usually under 2 weeks. An example is when an employee leaves unexpectedly and other employees are not able to be upskilled or supported to undertake the role at short notice.

This circumstance should not be the result of a lack of workforce planning, for example when an upcoming vacancy is known but action to fill occurs only at the last minute.

Other factors to consider

1. Value for money

Agencies must follow the Western Australian Procurement Rules and seek the best value for money outcomes (rule A1).

Table 2 shows the costs and other factors impacting the feasibility of using contractors in comparison to employees.

Table 2: Costs and factors related to employees and contracts

Also consider the government’s:

• preference for direct employment, noting this may not be practicable or financially achievable in all circumstances (check the relevant industrial instrument)
• social, economic and environmental priorities in the Western Australian Social Procurement Framework supported by the Western Australian Social Procurement Framework Practice Guide).

2. Declare and manage conflicts of interest

Agencies must follow the Western Australian Procurement Rules by acting ethically and with integrity (rule B1) and declaring and managing conflicts of interest (rule B2).

• If an employee can perform the work (clause 1.1). Check whether an existing employee can perform the work or consider if recruitment is practical in the circumstances.
• If one of the circumstances in clause 1.3 of Commissioner’s Instruction 41 applies.
• For more than 12 months unless both of the criteria in clause 1.4 are met. Employers are required to reassess whether they meet the circumstances in Commissioner’s Instruction 41 when an engagement is made and each time an engagement is extended. Where an employer has repeatedly attempted to recruit for a role without success, they may wish to consider applying for an exemption from this instruction.

The Department of Finance has common use arrangements (CUAs) that can be used to source contractors. Some of these are mandatory and each has buying rules. Where there is no CUA in place for the type of contractor needed, an employer must comply with the Western Australian Procurement Rules and other Government policies and the agency’s procurement policies.

When making decisions on how to fill workforce gaps, consider recruitment options including:

• using internal higher duties/acting opportunities to upskill existing employees
• determining whether any internal surplus employees (registered or registrable) can undertake the role/s
• posting the position/s on RAMS and giving priority consideration to external registered employees, then considering external registrable employees (Commission’s Instruction 12: Redeployment and Redundancy)
• considering whether suitable candidates already exist from recent recruitment processes for the same or similar positions at the same classification level, for example processes conducted in the previous 6 months, appointment pools and suitability lists (Commissioner’s Instruction 2: Filling a Public Sector Vacancy)
• seconding or transferring employees from other employers
• recruiting job ready trainees to Level 1 positions from the Public Sector Commission’s Traineeship Transition to Employment, Recruitment and Referral Service
• advertising position/s and conducting recruitment processes in accordance with Commissioner’s Instruction 1: Employment Standard, Commissioner’s Instruction 2: Filling a Public Sector Vacancy and Commissioner’s Instruction 5: Publishing a Public Sector Notice.

Employers should not use or rely on temporary labour solutions over the long term. As a key part of workforce planning, employers should continuously monitor and plan to reduce reliance on their use of contractors.

Effective workforce planning incorporates:

• analysing business needs, staff capability, and existing/emerging skills gaps
• planning how gaps are to be filled – direct employment is to be prioritised over contracts for services
• assessing whether short and long term contingent worker engagements meet business needs, and are the most economical and effective option
• measures to ensure compliance with Commissioner’s Instruction 41.

This enables agencies to:

• assess whether their use of contractors is the most efficient and productive means for meeting business objectives
• achieve potential cost savings and other efficiencies
• tailor workforce planning strategies and evaluate their effectiveness
• evaluate the effectiveness of recruitment planning and strategies.

Industrial instruments often include rules on the use of contractors. Check the agency’s applicable instrument and make sure these requirements are met. Employers can contact their labour relations adviser for assistance

If an employer identifies an ongoing need for work which is currently undertaken by contractors, they can consider converting non-salaries expenses allocated to the contract work to salaries expenses. This enables the creation of permanent positions and appointment of employees.

The Department of Treasury has a process for conversion of non-salary expenses to salaries expenses for this purpose. Contact the agency’s Treasury analyst for more information.

In addition to workforce planning, agencies may consider updating their policies and procedures to refer to Commissioner’s Instruction 41. These may provide for internal processes, decision making points and recordkeeping systems that ensure compliance with the instruction.

Employers and employees need to record approvals and decisions about the use of contractors including:

• approval of each engagement before it commences or is extended
• reasons for engaging a contractor instead of using an employee (must be recorded within 10 working days of the commencement or extension of the engagement).

Employers are required to provide these records to the Public Sector Commission and Department of Finance on request. The Department of Finance needs access to records of approvals and engagements of contractors to ensure compliance with the Procurement Act 2020.

Use the Commission’s Contracts for Services Checklist when first engaging a contractor or extending an existing engagement. It helps agencies meet their recordkeeping obligations and other requirements under Commissioner’s Instruction 41.

As required by industrial instruments, the Commission conducts reviews of employers’ compliance with Commissioner’s Instructions. Agencies are required to provide records to the Commission from time to time for this purpose.

Review findings are provided to the:

• WA Government
• Peak Consultative Forum (comprising the Commission, Government Sector Labour Relations, and Community and Public Sector Union/Civil Service Association to consult on cross sector workforce matters).

In exceptional circumstances, an employer may write to the Public Sector Commissioner at admin@psc.wa.gov.au requesting an exemption from the instruction. The request needs to outline the matters listed in the exemptions section.

The Commissioner considers the request and advises the employer of the decision.

Employers can email agencysupport@psc.wa.gov.au.

Employers owe a duty of care to contractors under the Work Health and Safety Act 2020 (WA). 

For further information visit Western Australia's Work Health and Safety Act 2020 guide.

Commissioner’s Instruction 41: Contracts for Services replaces Approved Procedure 5.