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From the Desk of the Executive Director

Ken Phillips is co-founder and Executive Director of Independent Contractors of Australia. He is a published authority on independent contractor issues and directs research on related commercial and trade practices issues. Through his numerous articles in newspapers and think-tank and academic journals, Ken is known for approaching issues from outside normal perspectives and is frequently sought out for media comment.

Australia got caught out by Freelancer.com

Tuesday, November 19, 2013

The launch of Freelancer.com onto the Australian stock market last week created great excitement. Upon listing, its 50 cent shares skyrocketed to $2.60 settling at $1.60. Commentators referred to it as potentially Australia’s Twitter.

The story underpinning the share market hype reflects not just a new age technology but rather a transformation in the way business and work is organised. Freelancer highlights how the transformation is expanding and will continue to overpower human resource practices inside large organisations, labour and tax laws and the very idea of what constitutes a business.

Freelancer.com connects people who want to do work, with organisations that need work done. It has hundreds of work descriptions under categories such as IT, mobile phones, writing, media, architecture, admin, engineering, product sourcing, sales and marketing, human resources, accounting, translation and more.

From a 2009 start Freelancer currently has almost 10,000 people offering their services with 5000 jobs valued at $1.3 billion under offer or happening. View this as just a tiny beginning. Watch other similar ventures grow!

Freelancer is best thought of as a stock exchange for labour in which the parties freely exchange services on agreed but negotiable prices. It’s a genuine ‘free market’ in labour. It smashes to pieces and makes irrelevant the entire idea of labour law. Unions, industrial relations lawyers and courts don’t have a look in.

What drives Freelancer’s success is that self-employed people across the globe have complete control over the work they want to do and the price they charge. These are pure commercial arrangements. People can and do work when and where they want on the work they want. No one controls them. They are judged, like any product or service on the quality of their output and their capacity to satisfy customer demand.

The buyer of the services post work they have available. The self-employed service providers bid for the work they want. Suddenly the alleged advantage of economies of scale available to big business is available to small business people as well. The size of a business is no longer relevant. A small business needing a specialised service can access the same skills available to big business and only pay for that bit of the skills needed at a point in time.

Traditionally large businesses employ specialised people, building their skills base and retaining those skills inside their business. The retention of the skills allegedly gives the firm the competitive edge over other businesses in the market place.

But now that competitive edge wilts as anyone can potentially access skills through a wide and diversified market for labour with low transactions costs. The idea of the firm changes dramatically.

The firm is no longer a command and control employment pyramid organised through structured classes of workers from executives to managers to shop floor. The firm is transformed into huge numbers of networking individuals doing ‘bit’ jobs on an as needed basis. This is transformational at the core of the economy. It appears chaotic and without control. But wake up – that’s a market economy.

Unions, whose very existence relies on the classes structures of the traditional firm, no longer have a role.

Human resources professional who allegedly ‘manage’ the relationships inside firms are excluded from this new loop. Relationships instead occur around commercial principles. If the parties are not happy with each other they immediately cease dealing with each other. There’s no forcing of relationships as happens inside traditional firms.

Tax officials are thrown into confusion. In Australia, and globally, tax laws assume that a business is a grouping of employees. They resist like crazy treating individuals as business. The Australian Taxation Office has embedded this confusion in the Personal Services Income tax laws. And for the last 3 years or so the tax office has been denying and removing from individuals Australian Business Numbers.

This means that an Australian denied an ABN doing work found through Freelancer cannot issue a legitimate tax invoice. At law the payer is supposed to withhold 46.5 per cent and send this to the ATO. A person doing exactly the same work living overseas does not have this restriction. In this respect the ATO is trying to hold back a surging sea of change imposing harm on jobs in Australia.

When the internet challenged the future of newspapers Fairfax, among many, pretended they were unbeatable. They have paid the price.

So Freelancer.com should be seen as just one part of a bigger wave assaulting the very structure of firms and the laws and regulations associated with firms and work.


[First published in Business Spectator, November 2013.]

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