Sham Contracting & Fair Work Regulations


Sham Contracting & Fair Work Regulations

The Fair Work Ombudsman, has announced it will take a tough new stance on compliance as of  1st July, and businesses can expect to find themselves subject to greater scrutiny and one of those areas is sham contracting.

The Government has provided additional funding to Fair Work to be spent on enforcement, underpayments, educating vulnerable workers and influencing non-compliant industries. As a result there will be a step up in compliance notices (a notice issued by a Fair Work Inspector which requires an employer to fix a breach of an Australian workplace law), if a business is involved in:

“If an employer [then] doesn’t comply with the terms of our compliance notice, the Fair Work Ombudsman won’t resile from taking them to court to seek penalties,” Sandra Parke, Fair Work Ombudsman said.

In addition, Fair Work will also be running social media awareness campaigns and intends to publicly name employers that break the law in order to enforce the message that it is not acceptable to underpay workers or deprive them of their entitlements. Yikes….

What is a sham contracting arrangement?

This is when an employer tries to disguise an employee/employer relationship as an independent contracting arrangement, so they can avoid paying employee entitlements, superannuation or penalty rates and overtime. For further info click here

What proves that there is sham contracting in my business?

If you are reported or investigated for:

  • Misrepresenting an employment relationship or a proposed employment arrangement as an independent contracting arrangement
  • Dismissing or threatening to dismiss an employee for engaging them as an independent contractor
  • Make a knowingly false statement to persuade or influence an employee to become an independent contractor

What are the ramifications of entering into a sham contracting arrangement?

You could be in the firing line for a financial penalty along the lines of:

  • Up to $12,600 for individuals, per contravention; and
  • Up to $63,000 for a company, per contravention

You may also be liable to compensate the worker for any employment benefits they would have accrued, for example, annual leave.

What if I have mistakenly categorised a worker as an independent contractor?

The distinction between an employee and a contractor can be unclear sometimes. However, you may be liable regardless of whether the error is unintentional and regardless of whether the worker is happy with the arrangement. If in doubt as to how the relationship should be categorised this may be a good time to call us 1300 717 721

Sarah Tidey

Sarah Tidey is a former lawyer who specialises in HR and workplace dispute resolution.

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