FACT SHEET: EMPLOYMENT CLASSIFICATIONS

OVERVIEW

The ABS publishes monthly estimates of the number of employed people in Australia. In addition, the ABS collects a range of information describing the nature of people's employment, in order to better understand and describe the structure of the labour market. Information about the nature of working relationships and employment arrangements in the Australian workforce is essential for a wide range of social and economic policy and planning purposes. Furthermore, statistics based on standards and measures relating to employment are used to satisfy obligations to national and international communities. For example, estimates of Australia's gross domestic product using the income approach rely on an accurate measure of the compensation of employees, which is in turn reliant on a standard that consistently defines 'employees'.

There are currently three different classifications that the ABS uses to differentiate between types of employment:

• Status in Employment;
• Employment Type; and
• Form of Employment.

Each of these classifications provides a valuable framework for understanding employment, and although related, each classification presents an alternative perspective on employment which is useful for different purposes. This fact sheet compares these classifications and provides an explanation of their intended uses, as well as their limitations.


STATUS IN EMPLOYMENT

The Status in Employment classification is based on the International Labour Organisation's (ILO) resolution at the Fifteenth International Conference of Labour Statisticians (ICLS) concerning the International Classification of Status in Employment (ICSE-93). It classifies the employed population into categories based on the job holder's perception of the relationship between themselves and their employer, as well as the legal status of their employer (where possible).

The Status in Employment categories are:

• Employee - a person who works for a public or private employer and receives remuneration in wages, salary, a retainer fee from their employer while working on a commission basis, tips, piece-rates, or payment in kind; or a person who operates his or her own incorporated enterprise with or without hiring employees;
• Employer - a person who operates his or her own unincorporated economic enterprise or engages independently in a profession or trade, and hires one or more employees;
• Own account worker - a person who operates his or her own unincorporated economic enterprise or engages independently in a profession or trade, and hires no employees; and
• Contributing family worker - a person who works without pay in an economic enterprise operated by a relative.

The standard output from the Labour Force Survey is based on the Status in Employment classification. Estimates based on this classification are also available from most other ABS household surveys, including the Labour Force supplementary surveys, Special Social Surveys, and the Census of Population and Housing.


EMPLOYMENT TYPE

Employment Type classifies employed people according to the nature of their employment relationship or contract. While both Status in Employment and Employment Type enable an assessment of the characteristics of the workforce and the extent of self employment, Status in Employment only allows for the identification of owner managers of unincorporated enterprises ('Employers' and 'Contributing family workers'). In the Employment Type classification people who operate their own incorporated enterprise are identified separately from other employees. Employment Type builds on Status in Employment, providing an alternative perspective on employees by separately identifying employed people who operate their own business (owner managers of either incorporated or unincorporated enterprises) from those who do not.

The Employment Type classification includes the following categories:

• Employees (excluding owner managers of incorporated enterprises);
• Owner managers of incorporated enterprises;
• Owner managers of unincorporated enterprises; and
• Contributing family workers.

Owner managers of incorporated enterprises are people who work in their own incorporated enterprise, that is, a business entity which is registered as a separate legal entity to its members or owners (also known as a limited liability company). Owner managers of unincorporated enterprises are people who operate their own unincorporated enterprise, that is, a business entity in which the owner and the business are legally inseparable, so that the owner is liable for any business debts that are incurred. This category includes those engaged independently in a trade or profession.

Estimates based on Employment Type data are available from a number of ABS surveys, including each of the Labour Force supplementary surveys and the Census of Population and Housing.

The following diagram shows how the two classifications relate to each other.

Figure 1: Status in Employment and Employment Type

FORM OF EMPLOYMENT

In addition to Status in Employment and Employment Type, the ABS recently developed the Form of Employment classification. Form of Employment is derived from information collected in the Forms of Employment Survey, which is run as an annual supplement to the Labour Force Survey. The survey was redeveloped in November 2008 to better capture the diverse range of employment arrangements in Australia, in particular, to identify those engaged as 'Independent contractors'.

Like Employment Type, Form of Employment classifies employed people according to the nature of their employment contract/arrangements, but attempts to delve more deeply into this relationship by collecting additional information which is used to further refine the nature of people's employment.

The Form of Employment classification has the following categories:

• Employee - a person who works for a public or private employer, who receives remuneration in wages or salary, and is engaged under a contract of service/employment contract
• Independent contractor - a person who operates their own business and is engaged under a contract for services (a commercial contract), and while may have employees, spends most of their time directly engaged with clients or on client tasks, rather than managing staff.
• Other business operator - a person who operates their own business, but who is not operating as an independent contractor. Other business operators generally generate their income from managing staff or from selling goods or services to the public, rather than providing a labour service directly to a client.

The Employment Type category 'Employees (excluding owner managers of incorporated enterprises)' is conceptually consistent with the Form of Employment 'Employee' category - that is, they both reflect those people who work for an employer and not in their own business. Similarly, 'Owner managers' from the Employment Type classification are conceptually consistent with the combined group of 'Independent contractors' and 'Other business operators' - that is, they both reflect those people who operate their own business. Furthermore, the Employment Type classification distinguishes between people who operate their own business on the basis of whether the business is incorporated or unincorporated, whereas the Form of Employment classification distinguishes between people who operate their own business on the basis of whether or not they operate as an independent contractor.

Further information on the methodology for constructing the Form of Employment classification is available in Appendix 1 of Forms of Employment, Australia, November 2010 (cat. no. 6359.0).


USING THE CLASSIFICATIONS

Each of these classifications provides an alternative framework for understanding the employment arrangements of Australian workers. However, it is important to note that each has limitations.

While Status in Employment is considered to be the primary employment classification used in ABS household surveys, it is best utilised for macroeconomic purposes. In the Status in Employment classification, owner managers of incorporated enterprises (OMIEs) are included within the 'Employee' category, despite functionally having more in common with owner managers of unincorporated enterprises (OMUEs) (who are classified as 'Employers' or 'Own account workers', depending on whether they employ staff). This is due to the legal status of an OMIE as distinct from their business, whereas an OMUE (e.g. a sole trader) has no legal identity separate from his or her business, and as such would be personally liable should the business become insolvent. This distinction ensures consistent treatment with the System of National Accounts, which is required for compiling compensation of employees data, one of the major components of gross domestic product, as opposed to payments to 'Employers' and 'Own account workers', which contribute to the gross mixed income component of the income account.

Thus, while Status in Employment is appropriate from an economic perspective, there is value in separating OMIEs from other employees, as in the Employment Type classification, in order to provide a more labour market relevant distinction. OMIEs generally have greater autonomy and authority over their business and employment conditions than other employees, and are usually able to set their own conditions, hours and pay (subject to the earnings of the business and other factors). Owner managers also tend to work considerably longer hours than people who are not operating their own business.

In understanding different elements of working arrangements (such as job flexibility, job precariousness, job stability, entitlements - such as superannuation and workers compensation) it is important to focus on those people for whom there is a genuine employer/employee relationship, e.g. in identifying those people who have paid leave entitlements (a proxy for casual employment). The Form of Employment classification offers an alternative measure of employment arrangements, with a particular focus on independent contractors. Changes in employment conditions and working arrangements in recent years have led to an increase in demand for data to support an understanding of these changes. One of the issues of particular concern regards the lack of distinction between dependent and independent workers, with many employed people working in 'employee like' situations, but not under an employment contract. Under these types of arrangements, it is possible that workers do not have the protection that working under an employment contract offers. The ability to measure these differences in working arrangements through the Form of Employment classification offers a valuable addition to the Employment Type classification.