Sham Contracting: Don’t Be Tempted

Are you in the business of sham contracting?

Sham contracting is illegal and the consequences are significant for employers of sham contractors. Penalties include sanctions and fines up to AU$54,000.00 for each contravention.

According to the Australian Government, “a sham contract is when an employer deliberately masks an employment relationship as an independent contracting arrangement, instead of engaging the worker as an employee.”

While some businesses may claim they didn’t realise their ‘contractor’ should have been engaged as an ‘employee’, the differences are clear – and ultimately the law will decide.

So, What’s the Difference?

Employees are usually supervised by an employer. They must comply with directions to perform their work in a particular way, complete different tasks from time to time, and are generally unable to subcontract any tasks given to them. They may be required to work for just one employer and be presented as an employee of that organisation.

Employees are typically remunerated with a fixed wage or salary and they work in the business operated by the employer on a permanent, fixed term or casual basis.

Independent contractors operate their own business and provide contracted services on a temporary basis to a number of businesses or contacts. They can take on work from other sources, refuse additional work, and are usually responsible for the risk and cost of fixing their faulty work. Contractors use their own tools and equipment, set their own hours and provide invoices.

Employers who engage contractors avoid paying certain taxes. Workers employed as contractors miss out on rights and entitlements like sick leave, annual leave, protection against unfair dismissal, workers’ compensation, insurance, superannuation, and minimum awards and conditions.

Don’t risk taking on a sham contractor or pressuring your employees to become contractors of they are not legitimately working as such. The Fair Work Act 2009 protects genuine employees, and the Fair Work Ombudsman, Australian Building and Construction Commission or a union will take action against you.

Ayers Group are the experts when it comes to contractor management. To find out more about whether your business complies with the Fair Work Act 2009, and for assistance with contractor management, contact us today.